Okay. So let's get started. We got a very busy day ahead of us. Welcome to Marvell's 2017 Investor Day. My name is Tom Legato.
I'm Executive Vice President of Sales and Marketing, Worldwide Sales and Marketing. And this is going to be a good day for us. We have over 100 people registered to be in this room. The weather has kind of tempered that a little bit. And there's a number of other people out on the Internet.
So a lot of you people seem to be very interested in what Marvell is doing these days. And so we've got a very, very informative day for you. I have to go through the safe harbor. You guys have been here before, you know that this is obligatory. This presentation contains forward looking statements.
It involves risks and uncertainties. These statements are not guarantees of results and should not be considered as an indication of future activity or future performance. Actual events or results may differ materially from those described in this presentation due to a number of risks and uncertainties, including but not limited to those detailed in Marvell's SEC filings from time to time. For other factors that could cause Marvell's results to vary from expectations, please see the risk factors identified in Marvell's quarterly report on Form 10 Q for the fiscal quarter ended October 28, 20 16, as filed with the SEC on December 6, 2016, and other factors detailed from time to time in Marvell's filings with the SEC. These slides provide financial measures of U.
S. GAAP as well as non GAAP basis. We believe that the presentations of non GAAP financial measures provide important supplemental information to management and investors regarding financial and business trends relating to our financial condition and results of operations. A reconciliation in accordance with SEC Regulation G for non GAAP measures used in these slides is available in the Financial Statements section to this presentation and or in the Investor Relations section of our website at www.marvell.com. So now that we proved that a public school education product can read, let's move on to the events of the day.
So here's what we're going to do today. Here's the lineup of speakers. So let me take a few minutes to go through this, kind of introduce the speakers to you and then we'll get started. So our CEO, Matt Murphy is going kick it off. He's going to talk about where we're going in the future, the results of all the work we've done over the past year to get the company focused and aligned on our target markets.
Now Matt spent 22 years at Maxim Integrated Circuits, where he joined as a product marketing manager and went through a number of things, including worldwide sales and running all the business units and joined Marvell last July as our President and CEO. Dan Christmann is our Executive Vice President of Storage. He will actually talk to you about our storage business. Dan is local boy done good for you guys. After high school, Dan went to the Marines, fixed SUNY and RPI to get physics and engineering degrees.
And from there, he saw the light, moved to California and joined Marvell, worked alongside Matt for the next 16 or 17 years, went off to a startup for a few years because it's the law in Silicon Valley that you have to join a startup if you're in the tech industry. And then he rejoined Matt in the past year. Matt brought him back from ESS. Chris Coopmans runs he's Executive Vice President of our Network and Connectivity business. Chris was actually a PhD candidate at the University of Illinois.
And as with a lot of PhD candidates and professors got into the treasure trove of intellectual property at University of Illinois and started a company called BYTEN Mobile, decided it was better to have money than not to have money and ran his company for a number of years until in 2012, he got bought by Citrix, where Chris worked for another three and a half years before he actually joined Marvell in the first half of twenty 16. Jean Hu is our CFO. Jean, after getting her PhD from Claremont University in Economics, worked in the Orange County Tech Industry. You most recently know Jean. She spent the last 200 years or so as the CFO at QLogic.
And so she's actually joined Marvell after QLogic in fact was bought by Cavium and she was made available to us. I'm Tom Legatta. I am the Vice President of Sales and Marketing. I'll talk about what we're doing to drive revenue growth in our customer relationship. I actually graduated from The Ohio State University in 1980, got another engineering degree from USC.
So I'm absolutely conflicted when it comes to NCAA Football. Been in the tech industry for about 36 or 37 years, most recently at Broadcom. Most of you guys know me from Broadcom where I run worldwide sales. And before that I actually ran the networking business. So that's the lineup for today.
At the end of the day, we'll do about a 30 minute Q and A And then after that, we'll have a hosted lunch. So without further ado, let's get started. I'd like to introduce Matt Murphy, our President and CEO.
Thank you, Tom. All right. Good morning to all of you. It's great to see you. And I know a lot of you had to bear with the weather getting here.
So it's amazing to see the turnout that we've got. I think as Tom mentioned, we had something like 150 people sign up to come live, which is a huge turnout for an Analyst Day like this. And I think it speaks to the interest that's in Marvell. So we're excited, I'm excited today to tell you the story of Marvell and where we were and where we're headed. So first, I want to start off with a question, okay?
I want all of you to raise your hand if you've ever attended a Marvell Investor Day before? Raise your hand. I don't see any hands. That's because, guess what, this is the first ever inaugural 2017 Marvell Investor Day. So we're breaking new ground here.
And I think it's a testament and a sign of how the company has changed and, in particular, how we're thinking about investor outreach, investor transparency. It's one of many positive changes I believe we're introducing to the company. But Marvell has been and still is one of the leading high speed communication SoC companies in the world. It's got an incredible engineering heritage. And when you think about the explosive growth that's happening in the cloud and the data center and the amount of storage that's going to be created and network traffic, the bandwidth, the power, the access that's required to do all that plays directly to Marvell's strengths.
And we're very excited about that opportunity, and we're going to talk about that today. We really provide the essential technology to build the networks of the future. So for the next 25 minutes or so, I'm going to give you some of the answers to the most frequently asked questions that I get from investors since I joined the company. And from my point of view, it comes down to 3 things that most of you ask me every time I have a meeting. So here's the three questions.
The first one, why did you take this job? Why did you actually go off and do this? Wasn't this a little bit risky? What were you thinking? The second is, okay, you've been in there for a while, 3 months, 6 months, 8 months, however long it had been at that period of time.
And what have you found? This company was a black box before. We couldn't get information out of it. We didn't know what was going on in Marvell. So what did you find?
You've been in there now. And then finally, and I think most importantly, and this is really where we're going to spend the bulk of my presentation and the day today, is answering the 3rd question. I think that's a question on all of your mind, right? Can Marvell grow? And so I'm going to answer the first two now, and then I'll walk you through some slides.
But I want to stress to you that, again, Marvell is not just a value unlock story. It's not just a restructuring story. It's a growth story. And excited to share that with you today. Okay.
So let's start with the first question. Why did you do this? Who are you? And where is the company coming from?
And where are we heading?
So as Tom mentioned, I'd spent 22 years at Maxim at 1 company my whole career. And it's funny, when I've met with investors, a lot of you think that for some reason that me and the new management team, like, a lot of you think that for some reason that me and the new management team, like we've been doing this for years. Aren't you guys a couple of years in now? Like, and I want to remind everybody, as Tom mentioned, I joined on July 11, 2016. I was fairly early in the hiring of the new management team.
Actually, a lot of people who are here today that you'll hear from were actually hired after me. So this is a relatively new team. And for me, although I never competed directly against Marvell when I was at Maxim, I knew the company well. I mean, it's a legendary company in Silicon Valley. It's an iconic company.
And more importantly, the engineering team at Marvell is legendary. So I always had tremendous respect for the talent in the company, but I didn't know much about it. But clearly, I followed the issues that the company was having in 2015 2016. So when I got contacted about the role, let's face it, I was pretty happy. I was working for a good company.
I worked with a great team there. I had a great boss. And I really had no reason to leave. But at the same time, as I took a closer look, I mean, what an opportunity I thought that Marvell presented, okay, especially the more I got to know about it. And so from the outside, you got to imagine, it didn't look great if you look back to when I started talking to these guys in May of last year.
It was a company in trouble, a number of issues, a lot of external issues. You've all read the headlines, investigations, potential delisting, risk of restatement, declining HDD market, leadership transitions. I mean, you can just go on and on and on. And I actually wrote down a list of all of my concerns. As I went through the process, I actually ticked off all those risks and concerns and realized what was underneath was a fabulous company, an incredibly capable company.
And so when I looked through, I realized, if we just went in there and got the company refocused, there was a lot of value to be created and an impact to be made. And in my career, and a lot of you some of you know me actually from my time at Maxim, some of you don't, but I've had the fortune of always being been involved in growth businesses in the company. I joined Maxim. It was about $100,000,000 company when I left. We were at $2,000,000,000 plus And along the way, I got involved in a lot of product lines and a lot of businesses.
And was and I know what growth looks like. At the same time, at the end of my career at Maxim, in 2015, I was part of the team that also drove the transformation there. And I'm not sure how many of you followed that, but that was actually a similar story where company was focused on probably too many things, spending a little bit more on R and D than it should and needed to take a closer look at its manufacturing cost structure. And so that transformation was actually very successful. It got the company refocused, dramatically lowered the cost structure and improved margins.
And so a lot of that experience I had going through that, which was very different than being in growth mode, going through transformation mode, is a different experience and a skill set. But it was highly relevant. And so even though I had never been a CEO before and I had been at the same company for a long time, I really felt like I had relevant experience. And so when I looked at Marvell, I thought I could do this. I could make an impact.
And so when I talked to the Board, I basically told them, look, I think I'm probably the unconventional candidate if you look at it from an outside point of view. But I was absolutely confident I could make an impact. And I've built my whole career around taking on challenges, and this was about the biggest one that I could find. And at the end of it, too, you know what I concluded? That this was exciting, and I thought this could be a lot of fun.
Okay. So what have I found? So I started on July 11, and I had my own three questions when I got into the company. First was, this company is spending $1,000,000,000 on R and D. Where is it going?
What are they spending it on? And you can imagine there was not really the data systems in place to actually uncover that. So that took some work to unpack where all the spending was going, what was it targeted towards, had it been returning or not, was this a good investment. The second was just on cost of goods. There's another $1,000,000,000 a year being spent on COGS.
And I always thought that the margin structure of Marvell appeared to be below relative to the engineering and the IP and the talent in the company. And so that was another one, okay, how do we go unpack the COGS? And then the third question, which I'm going to get to is, and then finally, when we get through all this, can we grow this company? And so when I got in, here's what I found. I think I'd characterize Marvell as the world's and a lot of this term can get overused sometimes, but I think it's really true.
The world's largest startup. The company literally was run like a startup and it got to $4,000,000,000 in sales. And it was an amazing accomplishment that it actually got so large, run-in the manner it was. But it was highly successful for a long time and then all of a sudden it wasn't. And so the first thing was, hey, we got to get a solid management team in place.
And I'll go through some of the management members of the management team in a little bit. But you should know as investors, that's in place. We've got a great CFO, finance is under control, Gene's in place, that's done. We've got a very strong operations head, Andy McAuliffe, who has very relevant experience from his days at Aegir and LSI, Operations, under control. That's done.
And then you'll hear actually from Tom today, we've elected to actually give you a deeper dive into our sales strategy. And so we've got a very capable sales leader. So that's done. And I could go on and on through the management team, but I'm very, very confident that we've actually put a very capable team in place quickly to go move this company forward. So on the R and D side, when you looked at that spending, I'd characterize it in this way.
There was a lot of the spending going towards what I would call large consumer opportunities with very large TAMs and very low margins. And ultimately, when I went through the R and D review of the company, those opportunities didn't have the margin performance, didn't have the returns, didn't have the competitive positioning. And ultimately, I didn't think they were going to be successful. I also found a decentralized procurement effort. So this $1,000,000,000 of spending on things, on stuff, nobody was in charge of it.
There wasn't a coordinated manner to kind of go attack it and get religion around it. So that's something that we put in place. And that was the goal, get the arms around the R and D, get the arms around the spending, set a time line, get the team on board, get the company on board and go execute. And so on the R and D side, what we found when we stripped out all the, I'd say, somewhat extraneous spending was actually a great set of core businesses, phenomenal set of core businesses, franchises with strong market share, good margin structure, good competitive positioning. And so we restructured the company around those, around that focus.
It wasn't just a cost cut. It was actually a refocusing on a strategic set of product lines and businesses to get the company back on track. And as a result, and I think you guys have seen it in terms of the announcements we've made, teams made a lot of progress in unlocking value. I think the restructuring that we announced and the execution we've had so far, I'm very pleased with. I think our team's done a great job of doing that.
And I think we've gotten credit for that from all of you, so we appreciate that. We've rightsized the R and D. We've got the expenses under control. And but I think there's more we can do. As I mentioned, whole team's just still getting assembled.
And I think we're still in the early innings
here. So let's get to
the final question, okay? This is the 1,000,000 or the $1,000,000,000 question is Ken Marvell Growe? And at first, I've got to admit, I walked in and I wasn't sure. I didn't know. I and it certainly wasn't obvious from the outside that this was even possible.
But as I've been in the inner workings of this company now and I've studied the markets, traveled all around the world, talked to the customers, talked to the engineers in the company, worked closely with the product line people. I'm pleased to report there is a lot to like in this company. And I'm confident that we can grow this company organically on our own. And let me tell you why. Okay.
So if you think about the megatrends that are happening, one is there's going to be an explosion in the amount of storage that's created. And I think this is well understood. So I'm not going to go through in the level of detail that some of our customers would go through because I think they make one more compelling case than we do. But just to give you a frame of reference, back in 2013, IDC came out and did a report on the digital universe and said there was in that year in 2013, there was 4.4 zettabytes of storage created. Since then, you go out to 2020, and this is projected to grow something like a factor of 10.
So key point here is, look, there was a lot of storage being created. You think about mobility, IoT, industrial IoT, connected car, you name it, this is driving a tremendous increase in the amount of storage at an exponential rate, doubling something like every 2 years. So you think, well, how does this relate to Marvell? This is a good trend for Marvell, okay? This is a very good trend for Marvell.
And for us, whether it's traditional hard disk drives, nearliner capacity drives, new technologies like TDMR or even on the flash side, traditional NAND, 3 d NAND or other storage class memories, actually Marvell is agnostic to the memory. Marvell doesn't make the memory. What Marvell does really well, actually better than anyone else, is we move the data on and off the media faster and at lower power and at higher reliability than anybody else out there. And if you think about a throughput issue or a bottleneck in the network, this is actually a real bottleneck. This is a real problem to be solved because you've got a tremendous amount of storage and data sitting out there, and it's got to come off the media.
And it's got to come off the media accurately and at high speeds. And this is really what Marvell does. So when you look at this trend, and I think everyone can kind of wring their hands about different aspects of the storage market and is it going to grow or not and how's Marvell going to do, we sort of step back and look at the megatrend and go, there's going to be an enormous increase in the amount of storage out there, and we're well positioned across a number of memory technologies to participate. The second one is on the data flow, and I think this is also a well understood trend, which is just the amount of data traffic happening. And again, you've got to store the data and then you've got to move the data across the network.
And so this is the traditional Cisco VNI report. But from the consumer to the cloud, billions of devices connecting to the Internet, it's creating an explosion of data traffic. And again, through Marvell's networking technology, we become an essential reason why this bandwidth is enabled and can happen. And so one of the reasons that this data traffic is increasing so much is live video. And actually, we just had last week, we had the Snap IPO, marketed themselves as a camera company, which was kind of unusual.
The traditional YouTube, Bright, has moved from sort of stored video to their live offering, Twitter Live and ultimately Facebook Live. So again, what does this have to do with Marvell? You think about Facebook and Facebook Live. I guess Facebook's up to about 1,800,000,000 users now. They're generating about 8,000,000,000 views a day of live video.
And these videos are stored forever. Today, it's in 720p. It's going to 1080p and then 4 ks. So how does this all work? And actually, how does this benefit Marvell?
How does Facebook Live benefit Marvell? Okay. So here's The Rock. I don't know if you guys remember this. The Rock was live streaming via Facebook before the Oscars.
He had something like 1,000,000 views. And so what's interesting, if you follow the data flow, that data flow goes through the carrier network, right? That actually goes through Marvell Technology and Marvell Products. It goes through our switches. It goes through our PHYs.
It goes through our SOCs. That broadcast is sent to a streaming server, and then the data is stored in what's called an origin cache. And again, those go through Marvell data center switches and through and then ultimately into Marvell storage. The subscribers, which is on the right, they'll request to watch the live feed, could be in your home, which would go through a Marvell home gateway product, which we'll show some examples of that today. Or if you're in your workplace or you're in a coffee shop, you would go through a Marvell enterprise grade Wi Fi access point.
And ultimately, all this video and all this data is actually stored not once, not twice, but three times. And so again, you say, well, okay, great, I get it. But this was the big moment for us, right? When we dug into Marvell, and I think for some of the investors as well, where Marvell's value is, right, where the IP is, where the margins are, where the core of the company is actually in the center. It's in the center.
It's in the cloud and it's in the infrastructure. The challenge that Marvell had was it was spending a lot of its resources, energy and focus on the periphery. IoT, mobile phones, TVs, you name it, consumer oriented devices sitting on the edge where didn't have a strong competitive position and, quite frankly, didn't have the profitability and the franchises. So for us, when we thought about what to do next, we said, look, let's take the assets of the company, let's streamline, let's focus on the center, let's focus on the infrastructure and try to get this pivoted to build a sustainable, long term business model out of it that generates healthy margins, cash flow and all the things you would expect. Now one challenge was if you look back, and this was some interesting data.
So we've started to cut the data a little bit differently in Marvell now, and this is just one insight that we got. So this actually we took a look at not just the product lines that Marvell has, but where do the products end up. And so is it going into automotive? Is it going into computer? Is it going into mobile phones?
And so we've got a view of that now. And so we unpacked just a portion in the past that was going into the cloud and the infrastructure side. So old Marvellus was about 25% of the company's business. Actually, another big chunk, if you remember, was a big mobile business, which ultimately was shut down, and we had very little revenue left on. So this presented a little bit of a challenge.
As we've restructured and refocused and we've seen some nice growth over the last four quarters, actually, this portion of our business now is about onethree of our business. And so we're in a much more healthy place now to grow off of. So about onethree of our business is in this kind of stuff from an end market point of view. And as you look at our future plans and our growth plans, and we're going to give you some proof points on those today, our business model and business plan at Marvell is to actually get this kind of business, these end markets to represent half of Marvell or even greater. And we think this is where the growth opportunity is.
Now this is the view you're used to seeing, okay? This is the cut now by the product lines that we sell. And if you look back in the past, storage, networking and connectivity, those are the 3 focus businesses of Marvell. And now we've got everything lumped into other. And again, if you look in the past, other was a substantial portion of Marvell.
It was not small. And the interesting point was when I got into the company, the R and D investment in that piece of the pie was actually even larger than that. So we were over indexed from a spending point of view and a revenue point of view on to businesses and product lines that did not carry the kind of performance that we were looking for. So again, we restructured, we refocused, we did some de emphasis and we did some reemphasis on the core of Marvell. And you can see now, this is getting close to 90% or so of our actually, our base revenue are in businesses where we have growth plans, we're investing R and D, we're investing sales resources and we're trying to grow.
So it's an important point I want to make. We're not trying to take the company and grow it based on businesses that we're not really in today, and then that's sort of going to swamp out the businesses that we already have. These are actually businesses that we're in, and we've got healthy investment in those. And then in the future, we expect that almost all of our revenue is going to come from these three segments based on, 1, the de emphasis of lower margin businesses and then the emphasis in the investment in some of these growth areas. So we think this is an eye opening story.
So just a quick run through now of yes, sorry. So there's the change over time. So a quick run through now on our 3 businesses. And I'm just going to stay at a high level here because Dan and Chris are going to take you through in more detail. So on storage, quite frankly, it's a great business for Marvell.
We're the market leader here. We've been at this for 20 plus years. Actually, it was the first business of Marvell, was our rechannel technology. Company possesses tremendous system level expertise, which creates a high barrier to entry for others to enter. And we've still maintained and continue to invest in technology.
So that's our storage business. And our strategy, and I don't want to steal Dan's thunder, but our strategy is to continue to grow our market share in this business, shift our mix to the cloud, because traditionally Marvell was more on the client, and we're making progress there. And then through some other initiatives in R and D, actually expand our available market in storage. In networking, we've got a long history here as well. Ethernet PHYs were one of Marvell's original businesses.
And along with the acquisition of Galileo in 2000, where we got switched technology, again, we've been at this for close to 2 decades. We offer a complete technology platform for networking, which is pretty unique, especially in the enterprise and the SMB area. And we'll talk about that and how that plays to our strengths and our growth strategy. Here, really and I was even stunned to kind of see the numbers finally add up. We have a very refreshed portfolio here in networking of new products that are actually getting traction and driving revenue growth.
And we're going to really leverage that as we think about some of these market transitions that are happening in networking and enable Marvell to be well positioned in the future. And then we're also going to talk about, which is, I think, on a lot of your minds is what's our play for the data center in networking and how are we going to compete there, especially with some large established competitors. But be clear, the data center is part of Marvell's strategy. I think we've got a thoughtful way to enter that market and participate in that growth as well. And finally, on connectivity, this is one where a lot of investors, I think, have questioned me probably harder than the other 2.
Okay, you've got this business. Isn't it in a bunch of mobile phones? Why do you still have it? And what are you going to do with it? And so again, we'll dive a little bit deeper.
But remember, we are an established player in this market. We still have substantial revenue. It was an organically developed business inside Marvell. Again, here, we have a complete technology platform of RF, of SoC capability, of firmware and software and system level knowledge. And then we're really a leader when you look at what the current mix of our businesses in Wi Fi is actually what I call enterprise grade.
So it's either for enterprise access points or automotive or really high end home gateways. So I'd call it the premium segment of Wi Fi. And we think there's some exciting opportunities there, especially as we've worked our way out of some of these lower margin opportunities and into a much richer product portfolio going forward. And again, I think we think by focusing on performance, focusing on markets where it's not just about the standard, but it's about innovating around the standard, we think we can add value. And then again, growth markets like automotive and connected home, we think, provide a nice growth trajectory for this business.
So that's the high level. You're going to hear in more detail from my team about this, but think we have some nice growth opportunities in all three of these segments. So a little bit on the leadership team. So over the last 8 months, we've really built an entirely new leadership team in Marvell. And I'd say collectively, we're already operating as a team.
These are senior proven leaders in the industry from different companies and different backgrounds, diverse set of experiences. All of them have operated at scale in the past, either at Fortune 500 Companies or Large Established Companies in our business. But more importantly, this team has really started to gel. Actually, we're gelling really well. And I think one of the things that sort of brought us all together is we all do share a common vision for the opportunity at Marvell and what this company can achieve.
And it's actually been a really rewarding part of the journey we've been on to bring in this kind of talent and get everybody working together. And then as we're seeing progress, it's quite fulfilling. So Tom already did a very colorful introduction of several of these people, so I won't try to compete with him. But Dan runs our storage business. Mitch Gaynor, who's here, runs our legal.
And by the way, many of these individuals are here. So when we have the lunch afterwards, I encourage you to actually interface with not only the presenters but the rest of the extended management team who's come out to meet with you as well. Gene is our CFO. Gary just joined us last week from Broadcom. He runs Corporate Development.
Chris is networking and connectivity. Obviously, you've seen Tom up here already, who I've known for over 10 years and was actually the sales VP at Maxim at the same time he was the sales VP at Broadcom. So we go back. Andy runs our operations and is doing a fabulous job in his team of getting our cost structure under control. And finally, Karen joined us in December as our Head of HR.
So we've got a nice team that's been filled out, and we're very happy about that. I do want to take a moment to acknowledge also, in the same time frame and even before really all of this, we also put in place a new and expanded Board of Directors at Marvell. And that's worth mentioning because the company did suffer from challenges around its corporate governance practices. And the fact of the matter is we brought in actually a world class board that's not only new but provides, I think, great oversight over the company, great support and advice to me and the management team and have really been champions and cheerleaders for the company as we've gone forward. So all of us on the management team appreciate the board's support.
And remember, they put in a lot of hours that most of you don't even realize before any of us got here when they got involved with the company and started to turn the ship. I will say, and I'll spend just a few seconds on this, this company is just more than executives, though, okay? And it's more than a Board of Directors. And we have thousands of employees in Marvell, okay, who, let's face it, imagine being an employee of Marvell over the last 2 years. These guys have gone through a lot of turmoil, and they've and a lot of soul searching on what's going to happen.
And I want to just give them a quick compliment and also let you know that it's been really refreshing to get involved with this company because the employee base actually has been incredibly receptive to change, incredibly enthusiastic about that and really supportive of all the actions that we've been taking. And I couldn't be prouder of how they've done it. And this is important to know because everyone's asking, well, how did you guys make this right turn so hard? How have you actually been able to execute and get done what you've needed to get done? And it doesn't happen if you don't have the team behind you and you don't have the crew.
And so I just want to acknowledge also that this was a big team effort, not only for me, the management team and the board, but the thousands of Marvell employees who many of whom, by the way, are incredibly long tenured and care a lot about this company. Okay. So we've made a lot of progress. Back in July, after about 6 days in the company, I don't know how many of you were on this analyst call, earnings call. It was like I joined July 11.
And July 17, I was thrown onto my first earnings call with Rick Hill, where we had to go over our Q1 earnings, and it was not a pretty result. They were obviously delayed. And then basically, we came out and said that we were down to $540,000,000 in revenue. We put out gross margins of 52%, we basically made no money. I think we made like $4,000,000 in that quarter.
And I think that was a low point. I mean, even when I was coming in, I'm like, oh, my gosh, how low is this company going to go? And that was a tough call. By the way, I've now subsequently completed 4 additional earnings calls. I've actually done 5 earnings calls in like 7 months, which I think has got to be in the Guinness Book of World Records.
If you can find another CEO that for the first time CEO that did 5 earnings calls in 7 months, I'd like you to tell me who that is. So I'm getting experience with this at least in talking to all of you. But look, if you just kind of take a look at where we were in Q1 2017, kind of a little bit of a darker period, And then you look at the guidance that we just gave in our earnings call last week for our projected Q1 outcome, you can see that actually revenue now is projected at $570,000,000 which I think was certainly better than consensus, which we were very happy about. I think gross margins, in particular, I think we're most proud of the progress we've made here. And I think if you asked anybody a year ago, was Marvell going to be able to guide a 59% gross margin quarter, I don't think you would have gotten many people that thought that could happen.
So again, that's the plan of record. And then finally, I think it is a milestone. It's not something we're that we sort of view as we're done by any stretch of the imagination. But I think this sort of mythical 20% operating margin, can Marvell get there and then can Marvell actually go through it is another question. But midpoint of our guidance suggests we'll actually get to a 20% operating margin next quarter.
So again, I think the framework of this is we've made progress. You've all seen the results in the guide. But I want to stress, it's happened at a pretty compressed period of time. And I just say we think that there's more we can do. So this company has a unique combination of assets.
I mean, if you think about it, it's really a leader in mixed signal design. We leverage it across the entire portfolio. It's kind of the core of Marvell and what differentiates us. But the company also is really very much a systems company. I mean, it's a combination of silicon, software, firmware and actual knowledge of how the end systems are built is a major differentiator for us.
And we consider that a major asset. We also have flexible software. And we provide a lot of our own software to customers. You'll hear that from Chris and Dan today, how we do that. We also are a big proponent of open source and we enable that or we allow the customers to actually customize.
So this flexible software model adds stickiness to our products. And actually, it's a key selling proposition and value proposition when we go to market with the customers. And finally, look, the company was built by a founding team that believed in R and D and believed in innovation. And that innovation is alive and well in Marvell. We just, for the 5th year in a row, got this award as one of the top global 100 innovators by Clarivate, which used to be Thomson Reuters.
We had an all employee meeting just this past Monday when I was in California before I flew out to the East Coast. And the end of the meeting was we did a panel with the engineering leaders of the company talking about how they're driving innovation. And then we actually had the CEO of Clarivate come up and present the award to the entire team. And again, you've got this company now that's amassed 9,000 patents and again has an engineering team and a scale and a culture that I think really lends itself to pushing the envelope in new products and will help us in our growth mode. Our customers complement us all the time, by the way, about the quality of our team.
And so speaking of customers, I mean, that's another thing I've been really impressed with at this company is they did a great job here as a company on building relationships that are really world class. And I think as the industry consolidates, if you think about it, there are fewer and fewer players, especially ones with the capabilities that Marvell has. So they actually want us to win and want us to succeed. And we got some feedback from some of you when we were putting this together about what would be some useful things. So a lot of you said, hey, it'd be great to hear some customers give a testimonial.
And we actually reached out to the customer base, and you'll see it a little bit later today throughout the presentations. Actually, we got a whole bunch of customer testimonials. And so you'll actually hear them talk about Marvell and back up some of these points that I'm telling you so you can hear from them actually, not me. And so when you add all this up, it looks like these end markets we're in, they're growing about 6% a year. They're growing about 2x the semiconductor industry, as it turns out.
Semiconductor industry, if you look at sort of most forecasts, is sort of a 3% grower at this point, which is too bad, very different than when I joined the industry 22 years ago when it was 15% to 20% growth. Now it's 3%. But the segments that we're targeting are growing significantly faster than the overall semiconductor market. And I believe with the talent of this company, the technology we possess, the position we have in the markets that we are targeting, our plan is to outgrow the market. I would settle for nothing less and to take share and to get this company back on track and make us incredibly successful.
And I think if we do that as investors, you'll be incredibly successful as well. So in summary, to answer my last question, can we grow? Look, we have a leading technology foundation in our core businesses. We typically have a number 1 or number 2 position, and you'll kind of see that. So we have strong franchises.
We have blue chip, great customer partnerships, the top OEMs in the world, designing us in, pulling for us and advocating for Marvell. And finally, we've got this set of markets we're now targeting that are aligned to this megatrend of the creation of massive amounts of data that need to be moved and stored across the networks of the future, and we're aligned to the cloud. And so we think with the combination of all these attributes of Marvell, at least I'm confident that we can grow this company. And so I'll end by saying, incredibly excited to be here, incredibly proud to be part of Marvell. And I'll tell you that at Marvell now, there's a renewed sense of purpose in this company, a renewed sense of purpose.
I mean, you walk the hallways of Marvell, you go to our international locations, you can feel it. And our customers see it. And I hope today, as you go through the presentations, I hope that you feel it as well. Thank you very much. Okay.
Hello. So I'm Dan Christmann. I'm the Executive Vice President of Storage at Marvell. When Matt called me last summer and asked me to join him at Marvell, I thought, okay, well, I know Matt really well. I worked with Matt for almost 17 years at Maxim.
I knew Matt's character. I knew Matt's skill set. I knew how successful he had been. I knew his character. And also, Matt was a mentor for me for years years at Maxim.
I knew Marvell's technology was great, but didn't know a lot about the company until I talked to Matt and got his insights into what the opportunities were. But I also knew myself, I knew my own capabilities and knew my own successes and I knew I can make an impact. So I can tell you it ended up being a no brainer to join and I look back now on this, I'm thrilled I'd made the decision, I'm thrilled I joined Marvell and I'm very happy with the decision. But today, as I stand here and talk about storage, I'm actually very excited to be able to tell you the story of Marvell storage, right? So it's really a story as old as Marvell itself.
Marvell was founded on storage and the rechannel technology that's a key part of our business today. And if we kind of stand here 22 years after the founding of Marvell, I'm very proud to say that Marvell is still the leader in storage and we're growing. So I think most people here probably knows that Marvell is the leader in hard disk drive controllers. I think everyone probably knows that. But maybe not everyone here knows that we're also the leader in merchant silicon for SSD controllers.
Last quarter, we announced that we were actually more than 20% of our revenue in storage now is coming from solid state drives. This is an area we believe we can continue to grow and actually grow faster than the market. So Matt also talked about, hey, data is being created everywhere, lots of data, 10x data from 13 to 20. And it's really, really good for Marvell, right? More data, you got to store it, often you store it more than one time as Matt showed.
We think that we can grow in this market because we think HDD is growing in the cloud. There's double digit growth in SSD for us all the segments that Marvell participates, retail, client, data center, enterprise. And you know what, there's also new opportunities that I'll share with you today and some new markets and new technologies that Marvell is going to participate in, we'll actually expand our SAM further. So Matt showed you the strategy for growth or the strategy for storage rather. And for HDD, it stands the same.
Number 1, we're going to increase our share. We're going to increase our share because we have technology leadership that enables us to win more business with our customers. We're doing this by maintaining our business we have today in the client, but we're growing quite fast in the cloud. So data center and enterprise are growth markets for Marvell's HDD. And 3rd, we're going to expand our SAM.
I'll talk today a little bit about the preamp business. And preamp is a piece of silicon inside the hard disk drive. You have at least one preamp that's shipped at every hard disk drive. And it just happens to be that the SoC, the controller and the preamp talk a lot together and help make the ACD work. So why does Marvell win in hard disk drive?
Well, number 1, we have deep level system knowledge. Matt talked about this. We've been doing this for more than 20 years. We designed for the system, not just for the chip. I'll talk about this in a moment in more detail.
We also have technology leadership. Marvell has the best read channel in the industry. We have the most advanced PHYs. We have the best error correction codes. We also are on the most advanced process nodes, and we'll talk about this more in a few moments as well.
But the last thing Matt said was our customer relationships, right? And we have Tier 1 customer relationships with all three actually in hard disk drives, very close, long lasting, deep relationships. Rather than me tell you, I'm going to let one of them tell you.
I'm Dave Mosley, Chief Operating Officer of Seagate Technology. Seagate is a 40 year old technology company making hard disk drives, the storage solution that the world has needed for all of its digital creations, consumers all the way to enterprise. For the last 40 years, we've been the leading provider and we're really proud of this and we can continue into the future. Seagate was Marvell's first customer way back in 1995. I was actually in the division where Marvell first rang the doorbell and got the products in the door.
Obviously, deep engineering partnership started then and it's because of Marvell's excellence in technology and what we call the read channel, which is really a communication channel that allows us to process data down to the drive and back off the drive, turning the analog signals on the drive back into digital signals. Marvell has been our top partner over the many years since then. And we've developed areal density solutions, which allows to put more terabytes on every platter together for these many years. And I think that technology still very vibrant into the future. With such a long history together, Marvell and Seagate have obviously been working very cooperatively on innovative solutions that have stood the test of time.
The most impressive thing that I can think of about the Marvell Seagate relationship is the fact that it's ever as vibrant as it ever was. Many suppliers have come and gone in this industry, not just on the rechannel side, but all other parts of the silicon have been integrated into one chip and Marvell has been with us the whole way. As a matter of fact, I think the silicon solutions into the future will be ever more complex. The interfaces are getting more complex and the demands on the storage products are more complex and Marvell is actually out there in front understanding that technology, able to leverage in the future and a critical partner for Seagate. Data is growing a lot in the digital world and we all know that, but that's against the backdrop of tremendous change in architectures.
So the PC was one architecture that we all knew really well. Now as the data locality is changing to the cloud and maybe other applications like gaming or surveillance, the architecture has changed very quickly. We need partners who know the workloads, understand all of the technologies around those architectures and can help us. Marvell is a perfect partner in that space and I look forward to a bright future together.
As Dave mentioned there, Marvell has been at this a long time, more than 20 years, okay. And we have an understanding of the architectures to be successful in hard disk drive. We understand the technology and we have technology leadership. If you think about it, hard disk drives are very, very complicated piece of hardware. It's not just a piece of hardware, it's a very complicated system.
In fact, imagine you have a head that's hovering 1 nanometer over a platter spinning up to 15,000 RPM, right? It's not just hardware, it's not just software, it's mechanics, it's electronics, it's material science, it's chemistry. This is a quite an interdisciplinary piece of equipment. And it's pretty amazing if you think that thing works, right, yet alone works reliably and works over a number of years. But Marvell, as we said, is a system level expert.
You see the number of patents we have here, you see the number of units we've shipped, right? And we work closely with our customers to develop new technologies that help them increase their capacity, increase their reliability, lower their cost, improve readwrite speeds. As you're going to see later, one other point I'll make on this slide is that the same leadership, the same technology, the same amount of IP, this gets applied directly to our SSD products. It's one of the reasons we've been so successful is this scale and the IP we've generated in hard disk drives gets directly leveraged into our SSD business. So we designed essentially the brains of the hard disk drive, right?
As Dave mentioned, these are becoming ever more complex, right? This is not a business you can harvest and be successful. You need to invest, right? You need to have scale and you continue to innovate in order to be successful in hard disk drives, right. Dave mentioned the read channel, the communications channel that basically transfers information back on and off the platter, right.
We have 18 generations of innovation in Read Channel. It leverages our mixed signal expertise that Matt mentioned earlier. We're also the leader in air correction. Air correction is what allows you to basically put data on the disk reliably and pull it off, right? As you go to higher areal densities on a disk, you're essentially putting more bits in a smaller area.
That means you have a smaller signal, which means it's more prone to be corrupt. And once you put something on a disk, if you put it on there incorrectly, you lose it forever. It's not like in a network where you lose a packet, you send the packet again. If you don't write it correctly on the disk, you don't get it back. So error correction is extremely important or extremely important.
Also low power. So we talked about highest performance per watt. You can also read this as lowest power for the same performance. So if you're in a mobile device, lower power means longer battery life. If you are in a nearline or a high capacity drive, means you can put more of them in the same rack, right?
Because you have lower power, less heat, right? If you're in an enterprise drive, it means you can get better performance for lower power. It also means your drive will be more reliable because there's going to be less heat in the enclosure. We're also Dave talked a little bit about aerial density gains and how Marvell helps with aerial density gains. This is a pretty this is an interesting one because when you talk about areal density and you talk about how you interact with a disc, there's kind of how you write to the disc, it's how you read from the disc.
So when you talk about how you write to the disc, one of the things we're proud of is this last year we started shipping with our first customer, what's called SMR, it's shingled magnetic recording. It's a way to write to the disc. Now normally you write one sector at a time. With SMR, the word shingle basically you think of your roof. It's like you've got one overlapping another, it's a shingle, right?
So here you basically do, you write 2 tracks 1 after the other, so 2 at a time. And the second one overlaps half the track of the first one. You actually were overwriting data that you wrote already. But through complex algorithms and error correction codes, you don't lose the data. You actually are able now to compress more data in the same area on a drive, right?
So what that allowed us to do, our customer at least to do, using their technology and Marvell's technology together is ship the 1st mobile 2.5 inches drive, single platter 1 terabyte, twice the capacity of the previous generation, We're also working with customers on the next 2 generations of read or write technology, what we call HAMR and MAMR. HAMR is heat assisted magnetic recording, MAMR is microwave assisted magnetic recording. You think you're basically adding another element into the drive that can locally either heat from the outside or from the core civility of the drive and allows you to write into a much smaller area, another way of increasing capacity on a drive. And we're very far along with customers on these technologies. We believe we'll be first again to ship with those technologies.
And then last on the read side, we're working very closely with customers today on what's called TDMR, which is 2 dimensional, which actually means you're using multiple heads. I'm sorry, not multiple heads, multiple readers on a head. So now you can have wider readers, you can use 2 of them, maybe 3 of them, you offset them and you get a bigger signal because you're basically reading 2 parts of the track, you can basically subtract out the signal, get rid of the adjacent track noise and have a better system, right? So that's you'll see that coming. I can't say when, but we're working very closely with customers on that technology.
We'll be first again on that technology as we move forward. The other thing we're doing is leading in technology nodes and I'll skip the next slide on that. But Marvell was first to market with 40 nanometer. Today, we ship majority of our production is in 28 nanometer. Next year, we'll start shipping customers in 16 nanometers.
Now the important part about 16 nanometer is you still get figure of merit increases that are meaningful, right? So okay, I get a smaller die. What does that mean? Smaller means, well, I can actually either have a smaller die, lower the cost or I can add more stuff to it, right? And that's really important because as we mentioned, these are still evolving, right?
You get lower power, we talked about lower power, it means a lot of things, but it means lower reliability as well as longer battery life and lower heat and higher performance. And then the higher performance metrics. So we believe our 16 nanometer platform that we'll be rolling out will be again industry leading and will also be more efficient with our engineering both for ourselves and our customer. Matt also talked about the mix from Marvell moving into the cloud. We're seeing it in hard disk drives as well.
It's a growing segment. The biggest piece here is nearline from a growth perspective, which basically is capacity optimized. Imagine multiple disks, multiple platters in a single hard disk drive, maybe 6, 7, 8, 9, 10 stacked right on top of each other. These are higher value sockets because it's more difficult to make these work. You need to set up timing between platters.
It's very difficult to do. It's a growing market, but Marvell is also growing share in this market, right? We traditionally, if you look back maybe a year ago, our share was rather low in the cloud. But we're very pleased that we said in Q1 our guidance that we're very pleased with design wins and we're seeing ramps in the segment and out of FY 'eighteen we expect this to be a much more meaningful portion of our revenue. And if you think about this particular market, if you have the drives, the number of drives are growing, okay, they're becoming more complex because you have more and more platters in them.
We have less share in their higher ASP, we think all these things line up very well for Marvell in our future in the cloud for hard disk drive. The other thing I mentioned at the beginning about our strategy here for hard disk drive was expanding the SAM, expanding the content we can have in the drive. And there's really, there's probably 4 major components that are semiconductor components in a hard disk drive. There's the SoC, the controller that we do, I showed you earlier. There's a DRAM that typically sits next to it.
There's going to be a motor controller on the drive that helps spin it. The other piece is really is the preamp. This basically sits on a head stack assembly. You can see there's a picture there showing. This is a nearline drive, so you can see there's multiple heads because there's multiple platters sitting in between each of those.
And in the case of a preamp, you're going to ship at least 1 with every drive. As you move into nearline and multiple platters, you end up shipping more than 1, right, because more platters means more channels, you need 2 channels per platter. So you need more channels, which eventually means more chips. They're more complex because there's timing issues. So you essentially actually create quite a significant amount of additional content that can be shipped per drive.
It works very, very closely with the SoC, right? The SoC talks to the preamp, the preamp executes, give the data back to the SoC then processes the data. They work very closely together. So we have a very unique insight into this market if you're a company like Marvell. We actually started shipping our first preamps in 2016.
We're seeing tremendous customer pull to a very small part of our revenue today, you can imagine again as we take share in a market that's growing with higher ASPs, it's a very important business for Marvell going forward. Matt also mentioned the word agnostic earlier. We know that storage is growing. We know that the amount of data is growing faster than capacity increases can keep up with the data, which means overall, the data market or the storage market is growing. Now here we all acknowledge that the hard disk drive, there's some replacement happening in certain areas by SSD.
So sure, we see a decrease in the overall market, SAM for Marvell there. But keep in mind, this particular graph here doesn't include the preamp, which is about a $350,000,000 market. So this is the controller SAM only. So if you were to add in the preemptive, maybe about minus 3% CAGR, okay. But the key to take away from here is that overall storage is growing, Marvell is taking share and we believe we can grow in storage.
So we'll move to the next one, which is SSD. So you see the SSD. This is a growth of SSD. We've broken it out here between kind of client and retail and cloud, which is data and enterprise. This is our fastest growing business in storage.
We stated in Q1, it was more than 20% of our business. Based on the ramps we're seeing, we believe this will be more meaningful coming out of FY 2018 than it is even today. And the key on SSD for Marvellus is a very balanced business for us. We cover the full portfolio of products in retail, client, enterprise and data center. And that's a big advantage Marvell.
I'm going to show you
a little bit more about this as we go, but our customers love this about Marvell. And by the way, it's not easy to do, especially in the higher end of the data center enterprise. It's very high reliability required there and something unique that Marvell knows because of our HDD experience. Last is we're seeing growth across all the segments. So again, our strategy as it is in storage at HDD, for SSD is the same, increase, increase our share.
We're going to outgrow the market and gain share, okay. Grow in all the segments, not just the cloud, but all the segments, although cloud is our fastest growing segment within SSD, okay. And then expand our SAM, like I showed you in hard disk drives with the preamp as a new market, I'm going to talk to you about what we call network storage in SSD. And I think Tom later will talk a little bit about automotive, which is essentially a server on wheels, which will also have some storage, but we'll let Tom talk about that. Okay, so why do we win an SSD?
Well, first of all, we have a full range, as I mentioned, of SSD controllers And we also have a very flexible business model. And Matt talked about our software, he talked about how we're flexible and how we work with our customers. We're flexible on how we make our chips and how we deliver software. I'm going to explain why shortly. We also leverage I've said this a few times here, we leverage our HDD technology.
We've been doing for 20 years. A lot of the same technology that's used in hard disk drives is used in solid state drives. It's a huge leverage for Marvell. And last, strong customer relationships again.
And I'm going to let
one of our customers tell you, this is Nate Stephens, he is the VP of Flash at Kingston and Kingston is one of our long term partners in SSD.
My name is Nate Steffens. I'm the VP of Flash for Kingston Technology. So Kingston is the largest independent manufacturer of memory, and we also have NAND products, including solid state drives, USB drives and flash cards. Kingston's vendors are very important to us as a business. So we like to partner with somebody that's going to be with us for the long term to bring great products to the market, great quality products to the market for a long period of time.
So we started partnering with Marvell in 2012. We developed some controllers in tandem with them and asked Marvell to develop firmware on our behalf, and they have been great in helping us do so. So we buy controllers with them on a regular basis for our high selling product, the UB-four hundred. Marvell is very meticulous in their quality. So this particular firmware developed exclusively by Marvell allows us to give a great high quality product in our SSDs.
So our SSD business has grown tremendously over the last several years. We are now shipping over 1,000,000 drives a month and we feel that Marvell, given the resources that they've allowed to us and given the quality of product that they've delivered, will be a great, tremendous long term partner with Kixin.
So Marvell has developed strong relationships across many of the Tier 1 suppliers in this business. And we do this because our customers really care about quality, reliability and performance. They care about our broad product portfolio and and flexible business models. Let me talk to you about that right now because Marvell, as I mentioned, covers all the market segments. We cover retail, client, enterprise and data center.
We're very unique in having this breadth of product and technology in the solid state drive business. And it's possible really because of the scale of our entire storage business. We also offer a flexible business model. Let me talk about that a little bit. So we have some customers who want to buy a very simple off the shelf SoC and full turnkey firmware, which means we provide all the software, all the firmware, the production code, the manufacturing code, the test code, and they can just make a drive and take it to market, right?
Marvell does that. We have other customers who want to include some of their own IP in the design, maybe in the design of the IC, maybe in the software, maybe both, right? Marvell, we do that as well. We have other customers who say, here's a specification, I want this product exactly this way and I want to be the only customer who buys it from you. We do that as well.
So Marvell has been very flexible with our customers and this has been very successful for us. But there's a new model that's developing. It's really targeted to hyperscale data center, the i8 customers. And this is where the customer will buy or pick or select, if you will, an SSD controller from a vendor like Marvell. We provide with them a software development kit that goes with the chip.
They go and they select their NAND, their flash memory from 1, maybe 2 or more suppliers that they choose. They put their own firmware on top of the solution and then they go pick an OEM provider, OEM supplier to build the drive for them, test it, manufacture it, produce it. And they essentially end up with a custom SSD controller for their data center, meeting their specifications, and in some cases, very flexible. And Marvell is very well positioned, and we're seeing a lot of traction in this space because, number 1, we as I told you, we have flexible business model, flexible firmware, flexible software. We understand the requirements for all the various NAND suppliers because we work with all of them.
So if they choose 1, 2, 3 different NAND suppliers, we know how to work with all 3 of them or all 2 of them are all so we're very good at qualifying the various NAND sources and working with them to make their product successful. We also have the highest performance and highest quality in the industry for SSD, and that's very important for these types of customers. The engagement always starts with engineering in this situation. It never starts with procurement, okay? So the quality and the reputation Marvell walks in with is a very important asset for us in this application.
So our next I have one more testimonial here for you and our next one will become the CEO of Lydon. This is Charlie Sung. And Lydon, if you don't know Lydon, they're one of the leading OEM suppliers for SSD drives, particularly in the data center, the hyperscale data center. And together, we're winning business here.
I'm Charlie Zeng. I'm CEO of Laidan Storage Technology Business Group. Laidan is a leading technology company and we offer many products to our customers, like power supply, Wi Fi module and storage device. NetDome uses a unique proprietary firmware, which is configurable. And this is the best and ideal choice for different customer applications.
Mabya and the letdown have been partnering with each other for more than 15 years. We use many of Marvell products from our circuit state drive controller. And this is the best and ideal choice for different customer applications. One thing we look for in a partner is the flexibility. My well team is already very responsive, and their flexibility helps us to deliver the best product in the SSD market.
Malware has a broad portfolio of SSD controller, which enable us to address the different segmentation of the SSD market. Today, their customer high performance controller give us the performance needed to win in the high end hyperscale data center market, and we are gaining the traction. The
last thing I told you in SSD is that we're leveraging our competencies in HDD. The 20 years of experience we have in HDD, the same high quality, the same reliability that we have in HDD is going in SSD, right? We can our Marvell scale, our rich IP allows us to be more efficient also in producing SSDs. And as I also mentioned before that we are doing 16 nanometers in hard disk drives, we're leveraging that same work. And although we're shipping our majority of our chips today in 28 nanometers in SSD, next year, we'll also be shipping customers 16 nanometer in SSD.
And one key point I'll make on that is the low power on an SSD drive when you put the controller in there, these drives have a budget for how much watts they can consume. And the customers tell us that Marvell's lower power solution allows them to have to they put less power budget to Marvell, they can put more of the power budget to the NAND flash and run them faster and it gives them an overall performance advantage on their drives when they use the Marvell solution. So let's talk about SAM expansion. Hyperscale data centers have moved the storage from being local on the server to distribute it across the data center. It allows them to be more efficient in using the memory and accessing the memory.
But there's limitations when you do that, right? The limitations are that you add cost because you need a front end server to manage the storage in this new location. You have latency to the system because you have to protocol translation that have to happen. And you end up essentially having memories that are slower than if they were local. It kind of defeats the purpose and the performance in order to get an efficiency of the use.
Okay. So NVMe over fabric is really the future. NVMe was developed for flash for SSD, okay, stands for nonvolatile, okay, so the NV nonvolatile memory, NVM and NVM, sorry. So the point here is that the NVMe will allow you to basically put your memory distributed and it looks like it's local, okay? You have end to end NVMe transport of your data, lower latency.
It's meant to be the same latency as being local if
it was directly attached to
the host by PCIe. So you basically get the best of both worlds when you use NVMe or fabric. You get distributed data that looks local and can be accessed from multiple nodes on the network. So for Marvell, this is very interesting because as the market transitions towards what we believe the NVMe over fabric architecture, we're very well positioned. It's not in our SAM today.
We believe this will be at least a $500,000,000 SAM. But Marvell is developing now a suite of products around this architecture. The first one is we call our NVMe storage aggregator, which allows you to directly attach multiple NVMe drives to the network. It supports RAID functionality. Our NVMe storage NIC allows you to directly attach an NVMe drive right into the network.
And the key point to take away from this one is that we believe this technology will be integrated into the SSD controller of the future. And when that happens, Marvell is very uniquely positioned on the SSD controller to have a directly attached NVMe drives onto the network. Marvell already was first to market with NVMe interfaces for our SSD drives. We're already on multiple generations of NVMe drives. The last one is our NVMe storage processor, which really allows a seamless transition between different interfaces like SaaS, SATA, NVMe.
It will enable hybrid solutions of hard disk drives and SSD drives. And this actually won the Lindley Award for the best embedded processor in 2016, major achievement from Marvell. And I'll say we're working that's, by the way, on a 16 nanometer process already that's called the Armada SP2. We're working with customers actively today on these products. We're excited about the potential this market brings for Marvell.
We think it's another growth opportunity for Marvell storage in the future in data center. So in summary, we are increasing our market share by growing faster than the market. We're gaining traction in the cloud. We see our mix moving that direction already, and we're seeing ramps and new design wins. And we see opportunities to increase our footprint and increase our SAM in the future, which will enable new growth paths for Marvell storage.
So we are positioned to grow in storage, We're very, very excited about the future. Thank you.
Thanks, Dan. So I'm going to talk about our networking and connectivity business, and then we're going to take a quick break before Tom and Jean come up to bring us home. So my name is Chris Coopmans. I think Tom already introduced me. I've been in networking wired and wireless my whole career, both at startups and established companies.
I think Matt also made a compelling case that our demand for bandwidth is going to continue to grow and that there's a significant amount of infrastructure required to deliver that bandwidth. So our networking connectivity products actually enable that infrastructure. So let's start with networking. In the networking industry, Marvell has a long history and is a strong player today, but we actually don't think we have our fair share. And I'm going to talk to you about our strategy to gain share and grow this business.
So first of all, three parts of the strategy. First is really to refocus and refresh our portfolio. I think Matt mentioned that earlier, and I'm going to spend some time talking to you about what that portfolio refresh looks like and why it has been and will continue to help us grow. 2nd part of that is to capitalize on transitions that are happening in the marketplace. And this is really required to meaningfully move the needle in this market.
Finally, our entry into the data center, very exciting space for us and we're attacking it in a meaningful way and I'll talk about that and what it will mean for Marvell. 1st, a little bit of history. Matt mentioned that Marvell's networking technology goes back more than 20 years. As we said, the very first product was actually an Ethernet PHY transceiver, which is based on the same mixed signal technology as the read channel that Dan talked about. I think even Dave Moseley mentioned, it's that communication channel to turn that analog signal back into a digital signal.
That's exactly what an Ethernet BID does on a copper or optical cable. That's the same basis for our networking technology and business that was the foundation for our storage technology and business. We then, through a couple of acquisitions, got into a higher layer packet processing and software in the early 2000s. We were an early adopter of ARM and released our first ARM based SoC in 2005 and have integrated ARM cores across our portfolio since then. Together, this formed the foundation of a very strong Ethernet platform.
And we rode that platform through a significant period of growth to the point that by 2010, we're very strong players, specifically in the enterprise infrastructure market, which is the largest segment of the networking market. Now at about that time, Marvell as a company started to focus more on mobile. And the networking business followed suit and started to focus more on carrier, okay? And while we did gain some ground in the carrier networking market, we actually lost some of our strength in the core enterprise market and we missed the initial some other trends like the initial build out of some of the hyperscale data centers. Okay, so by about 2015, there was a good recognition that this wasn't this strategy wasn't working, actually brought in a new business team to run the networking business.
Actually, it was the old business team that had grown our networking business for so long. And the team immediately refocused the product line back into our core area of strength of enterprise, SMB and Campus. And you've seen the results with 4 straight quarters now that we've posted a double digit growth in our networking meaningful position. First, though, before we get into data center, let's talk about enterprise. And it's easy to lose track of this because the data center market is growing fast and it's what everybody is talking about.
Cloud is very exciting. But enterprise still represents the largest networking market by far. It's over a $2,000,000,000 opportunity for Marvell this year. It's also where our historical strength comes into play. If you think about enterprises and companies and the office infrastructure, there are thousands, hundreds of thousands of these companies around the world.
They have legacy services that have been deployed for years. They can't just wholesale upgrade and redesign their networks every day. So this 2 decades of hardware, software features, capabilities is not easily replicated. So you don't see all kinds of new startups entering into this space. It's a very high barrier to entry.
Actually, there's only 2 players really with a complete, intimate platform for enterprise today, and we're one of them. So we're well established in this market. We have strength and it was really the market and the segment that the team can make the most immediate impact on our business.
So let's talk
a little bit about what this Ethernet platform looks like. We have 3 products in the portfolio, 3 product lines in the portfolio. At the heart is the switch. This does all the packet processing and forwarding. The Ethernet PHY, as I mentioned before, is the interface to the analog world.
And the embedded CPU that runs the software, okay? So it's a there are 3 product lines in the portfolio. Speaking of the software, it's not a one size fits all here either. The software there are some companies that want to take a complete turnkey solution from Marvell. We call that the Marvell total solution.
There are others that have their own network operating system that they've been investing in for years, and they need us to just provide driver support. And then there's a whole healthy ecosystem of 3rd party APIs and open source, and Marvell supports all that ecosystem. So it's a very complex software ecosystem and hardware ecosystem to build into the enterprise market, which explains why there's really only a couple of players in this space today. Now let's look a little bit deeper at the enterprise. The enterprise market is not a one speed fits all market.
The bottom layer is actually the access layer that connects all of our end user computing devices into the campus network. That typically today is running at 1 gigabit per second. That moves up into the aggregation and core layers, which go to 10 gigabits and beyond. And every enterprise, large and small, still has a server room or a private data center of their own as well, and those tend to run between 1 10 gigabits per second today, okay? So within the context of the enterprise or a campus or even an SMB, there are multiple layers of networking that the OEMs who sell into this space need to provide a complete portfolio if they want to participate.
Therefore, the chip providers that sell into this ecosystem also need to have a complete portfolio. So when I mentioned earlier that the new business team came in 2015, refocused back to our core market and refreshed our portfolio, this was not just one new product. This was 25 brand new products, all delivered in the last 18 months. This was a massive R and D effort by this team to really completely refresh in the latest process technology, addressing the latest trends in entire portfolio of products. So let's look at this in a little bit more detail.
On the switch side, I mentioned the 2 decades of experience. This is actually our 7th generation core switch pipeline that's now been built across a variety of speeds and feeds to address the full extent of the market. From the low end, 1 2.5 gigabits, all the way up into the 10 and 25 gigabit core and data center products. In the PHY, we've got Ethernet PHY products all the way down from 1 and 2.5 gigabit all the way up to the new 25, 50 and 100 gigabit standard products. So our physical layer product portfolio also spans the entire stack.
In the CPU space, we have single, dual and quad core embedded ARM CPUs to address the full gambit of products in that space. And we're actually the first to market with the latest ARM based Cortex A72 cores, which is one of the reasons why our products are being selected for this infrastructure. So as we focused on the enterprise, we've targeted specifically the needs of these products and we're gaining design wins because of it. It's important to note that I mentioned there's only a couple of players in this space, our competition tends to focus on the high end and sell down into the lower end. So Marvell has targeted optimized solutions for the most common deployment points at the access, aggregation and core layers for our customers.
And that's why we're winning traction. Now our refreshed portfolio is helping us. But if we want to continue that trend over the long term, we really have to align ourselves to some key industry transitions. And people ask, that's great that you've grown for a few quarters. Can you really move the share needle in a meaningful way over the long term?
Aren't these designs done? Hasn't this stuff been out there for a long time? And the answer is that you need to have industry transitions to help you, okay? Things need to be happening in the industry that will actually make those OEMs redesign their equipment and make those enterprises buy new equipment and deploy new equipment in their networks. So there's a couple of key trends that we're going to talk about.
Number 1 is the multi gigabit enterprise campus. I mentioned earlier that your average enterprise SMB, you name it, today is running at about a gigabit on the access layer. Gigabit networking came out in the early 2000s and there was a massive upgrade cycle that happened to get all them all on gigabit networking. There's now clear demand to move beyond the gigabit. Just as an example, the current shipping Wi Fi access points actually support more than a gigabit at the radio layer.
So if you plug that into a gigabit access link, then your wired connection becomes bottleneck and you don't get to take advantage of the latest wireless access points. So there's clear demand in the enterprise move beyond gigabit. We expect that we're just beginning the next major upgrade cycle at the access layer and the designs for that equipment are happening now. So the designs that we're winning now with our refresh portfolio is laying the groundwork for our growth going forward. And we'll talk more detail about how that's happening.
The 2nd major trend is in the vendor ecosystem. We've seen in other markets such as the carrier market, Chinese OEMs have stepped up and taken a significant share of that market. Until recently, that hasn't really been the case in enterprise infrastructure, but we're seeing that happening now. And we'll talk about what that means for Marvell and how we're aligned to capitalize on that trend as well. Okay, so first of all, talking about the enterprise campus, if they're running at a gigabit today and there's a clear demand to go beyond a gigabit, why haven't they upgraded?
And the answer is the cables. Today, there's only 2 choices, 1 gigabit and 10 gigabit. And 90% of the cables deployed in enterprises today, built into the walls and ceilings and cubes and infrastructure, only they don't support 10 gigabits. It's limited by physics. You can't physically get that signal through that wire.
So the alternative, of course, is to upgrade the cables. Well, that's a multibillion dollar problem, and not to mention the construction project. And so enterprises just haven't done that, right? They've just stayed at gigabit, which is why a group of industry collaborators got together and created a new standard. In September of 2016, this new standard was ratified.
It's called Enbase T. And this standard allows us to go in between 1 10 gigabits and actually deliver multiple gigabits, either 2.5 or 5 gigabits on the existing wired infrastructure and enterprises today. Okay, so Marvell was part of this alliance, helped create this standard, and we've also developed a set of optimized solutions for enterprises who will want to adopt this technology. Okay, so once again, where our competition tends to take a 10 gigabit solution where they had strength and sell it down to the 2.5 and 5 space, Marvell has built optimized 2.5 and 5 gigabit solutions, switch, PHY and SoC, and we're winning designs because of that. Okay, so we expect this as this next upgrade cycle to the multi gigabit enterprise happens, Marvell expects to gain share because of that.
Now let's talk a little bit about the vendor ecosystem. So it's in China, there's a whole host of companies, Huawei, Huawei 3Com, Rayzecom, Rujie, etcetera, that are initially, of course, targeting the enterprises in China. Chinese enterprises tend to be on the lower actually, Chinese enterprises and cloud companies tend to be on a little bit of lower end of the speed spectrum. They're not pushing the speed barrier. And the OEMs that serve that market actually partner deeply and move really quickly to adopt new technology and to adopt new standards.
All of this plays to Marvell's strengths, okay? As we've just refreshed our portfolio, optimized for this space, we see those OEMs adopting our technology. And it's been a significant driver over the last four quarters. I mentioned that we've been growing. This has been a significant driver of that growth.
So today, you see that these Chinese OEMs pretty much own and dominate the China enterprise market. So today, they have more than 50% share of the Chinese enterprise market. But this is a story that goes beyond China. We've seen this happen before. And actually, if you go outside of North America today, 28% of the enterprise infrastructure is owned by Chinese OEMs.
Okay, so it's true that in North America, they don't have a significant share. But this is really not a China market story. These Chinese OEMs are gaining share for the whole world. So this is a rest of world story. And you should expect that as these Chinese vendors continue to gain share in the world of enterprise networking, Marvell will gain share with them because of the designs that we have won and are winning now.
Now in fact, let's hear from one of them now. For those of you who don't know H3C, it stands for Huawei 3Com, initially started as a joint venture between Huawei and 3Com. Today, it's HP's division in China. They sell and market equipment in the China market. They also build equipment for the worldwide market that's sold through HP.
So, you heard that he said that our portfolio well, you read anyways that our portfolio is aligned to where H3C is going, which is important because H3C is not just a vendor to the Chinese enterprise, but actually a major vendor to the Chinese cloud companies, Alibaba, Tencent, Baidu, okay. He also mentioned that they have adopted our campus and data center products and those will be ramping during 2017. So let's talk about data center, okay? I've talked about how we've refreshed our portfolio in our historic area of strength in the enterprise market and we're going to grow share. Let's talk about the data center market, okay?
The data center market is an exciting space because it's growing fast. It's also, a very diverse market, okay? It's not just one kind of data center. Actually, even out in 2020, estimates are that the majority of ports deployed in data center switches are going to be at 10 gigabits and below, okay? This tends to be the private enterprise data center, okay?
It also tends to be the lower end of the cloud data centers and the web 2.0 types of data centers. Then there's the high end data center, which is expected to run at 25 gigabits per second and above. So as Marvell looked to enter this data center market, the first place that we looked was the enterprise data center. This is the same OEM ecosystem that's buying our campus products, okay? So it's the same customer base who we enjoy a relationship with and they enjoy our technology.
It's also it's important to understand that the technology in the data center market is not so different, okay? It's like I said, the same switch pipeline that we're able to adapt to multiple speeds and feeds to meet that. And so when we first look to enter into this market, we really want to do it in a targeted way where we can win and make an impact in the immediate term, okay? So the first place is that 10 gigabit data center, okay? So we just listed this past fall, announced our 1st terabit switch, which is designed to support 48 10 gigabit server links.
And this is specifically targeting the yellow half, which is our mainstream data center products. We've got design wins today that will be ramping by the end of this year. Now the 2nd place, let's look at the high end data center. How are we going to really attack that? We know that this is a place where there's a very strong incumbent player.
We also know that there's lots of startups. Startups enter this space because it's a newer, you can do it with only 1 or 2 chips, and you can get in and build some specific relationships there. So this is a more vibrant ecosystem. So we need to be really targeted at how we enter into the high end data center market as well. So when we looked at this, our initial approach is to find the gaps, okay?
Where in the competitive landscape today is the gap. And everybody is chasing that ultrahighend That has That has actually left a gap for what we think it will be a significant portion of the data centers, and that's the 25 gigabit data center. This is where we expect a significant number of high end data centers to be, including those Chinese cloud partners. So again, just in the last few months, we've announced our first 1.8 terabit switch, which is designed to support 48, 25 gigabit server connections. This was a gap in the market.
Our competitor takes their 3.2 terabit switch and sells it down to 1.8, which means we have half the power and half the size of their solution. And we're winning designs because of it, okay? So this is what I mean by targeting gaps and making an immediate impact. Now, we're not ignoring the ultra high end either. When we first looked at the 40 gig and above part of the data center market, we looked for gaps in the solutions there that we could immediately address.
And for that, we focused initially on the physical layer. Okay, so all the technology that gets deployed in the data centers, servers, mix, switches, leaf, spine, top of rack, there's all kinds of physical layered products that are needed in that market as well. As an example, if you want to build high end 100 gigabit switch, these come in various shapes and sizes. And quite often, you'll end up needing a PHY retimer to give the signal a boost just before it goes out the edge. And so our 25, 50 and 100 gigabit retimer products are being designed into the leading high end switches and switch OEMs today.
In fact, we've started production ramps already with these products. The other thing that's happening is a move from 10 40 gigabit to the new 25, 50 and 100 gigabit standards. So Marvell has developed and delivered a set of gearbox solutions that will help customers who have the products based on the old generation to be able to very quickly adapt to the new generation. So for example, today, you're going to see our solutions shipping on the world's leading server and NIC vendors with our gearbox solutions. So our physical layer products are allowing us to immediately address gaps in the high end 40 gig and above data center market where we can make an immediate impact.
So as I said, when we looked at the data center market, my team and I are on a mission to get in and gain a meaningful share of this high growth exciting space. But we're doing it in a targeted way. Rather than going right at the same place that everybody else is, we've initially chosen to focus on the gaps where we can that we can address with our technology. But don't think we're stopping there. Very soon, you'll hear from us about new and innovative solutions that we think will be more disruptive to the industry, okay, which will allow us to come in and shake that market up and take a more meaningful share.
So stay tuned, we have more to come. Now let's hear from Palo Alto Networks, who's actually designed our terabit switch at the heart of the next generation security appliances.
I'm Varun Kaur. I'm Vice President of Engineering at Palo Alto Networks. So we are a next gen security company. Our unique platform combines networking and endpoint security along with our threat intelligence cloud to provide protection from cyber breaches. 85% of Fortune 100 and half of Global 2,000, they use our products to maintain trust in the digital world.
Palo Alto Networks have been working with Marvell since 2008, almost since the beginning. We have been using Marvell switches and PHY technologies in majority of our firewall appliances. Marvell's networking solution, which integrates hardware and software, are a key front end component Palo Alto Networks firewall. In an industry where technology is changing constantly, Marvell bring a high degree of technical expertise. So their switching product is very highly scalable and which helps us in our firewall.
And as well as in every interaction with us, as well as delivery in time, Marvell has been an excellent supplier. As we have seen in the news, cyber attacks are becoming more and more frequent and it is becoming more and more costly. So Marvell with their unique scalable switching solutions
digital world.
So you heard him say that we have a very unique product, okay? That's reflective of where we focused on the gaps. And they've taken even though we designed it for a top of rack switch, it's finding all kinds of other homes and products because of our ability to address a gap in the marketplace. Okay, so let's summarize our networking business. Okay, we have a strong technology, rich history and we're one of only 2 players with a complete platform in the enterprise space specifically.
We've refocused and refreshed our product portfolio with 25 brand new products, and we're winning designs because of that. We are entering the data center in a meaningful way, but in a very careful and targeted way where we can make an immediate impact. Together, we expect this to drive growth. So you've seen 4 straight quarters of double digit growth for Marvell, and we expect because of our alignment to the transitions enterprise market and our entry into the data center market to be able to continue that and gain share over the long term. Okay, let's switch gears and start to talk about wireless connectivity, okay?
This is another space that we have a very rich history. Matt mentioned we have 15 plus years of organic development in wireless technology. This is a business that we're a little bit earlier in our strategy pivot. Until recently, Marvell had a very broad portfolio of wireless technologies, including mobile, IoT, modules, cellular, a lot of wireless technologies. And what we found is that a lot of those spaces were spaces that it was very difficult to differentiate technically.
And that meant that it was difficult to get the margins that we want out of those businesses, okay. So Marvell's pivoted strategically and started to focus on the markets that we think do value differentiation and specifically the high performance markets that value that differentiation. And what you've seen is over the last couple of years as our as those lower value businesses has declined, it's left us with a much higher margin, higher fidelity, higher performance wireless business, where we now reach we now believe last quarter we've reached the bottom and we are poised for growth. Okay, so let's talk about our portfolio. So today, we've got a complete portfolio of Wi Fi and Wi Fi Bluetooth combo solutions, starting at the low end with 802.11n client solutions.
And then we have a whole portfolio of 802.11acwave2 products that are enabling the next generation of high performance access today. Now although others are putting out press releases about technology multiple quarters before they have silicon, Marvell is very focused on the silicon development and we're very advanced in our development of our 802.11ax portfolio and we're working very closely with our customers on that as well. So you should expect to hear more from us on our 11ax portfolio soon. Our customers are a testament to the fidelity of our products. Some of the top name brands that really require the high performance and reliability and quality that we're targeting.
So when we talk about high performance, which market cares more about performance than enterprise? Enterprise wireless is the access layer in enterprise for end user computing. That's how we all connect the network. It's how you all are connected to the network right now. So we pack this many people in a room, the wireless access better work, Okay, so this is one of our strongest areas today.
We're the leading provider of wireless access platforms for enterprises. We have a complete platform, not just the Wi Fi, radio technology, but this is that same ARM based processor that we sell into network infrastructure that's sold into wireless infrastructure, and it's the same Ethernet PHY that connects that to the outside world. In fact, for the wireless access points, they often are providing the power over Ethernet as well. So our products are powering the leading enterprise access points in the world today, and we have a complete platform of configurable software and hardware. But how did we get there?
Why are we selected as the leading vendors in this space? And the reason is our performance, okay? We partnered early with them and we built we have the leading radio performance, highest concurrent user performance. We've got spectrum intelligence and beamforming solutions that allow the most efficient and highest bandwidth connections. So you're talking about beamforming for a second, beamforming is an AC standard.
So if you have an 11ac Wave 2 client and 11ac Wave 2 access point, it will allow the access point to form the beam to deliver a more efficient stream to that user. Where we're unique is we have implicit beamforming technology that's widely deployed today that allows us to even older clients that aren't based on 802.11 wave 2, we can identify them, locate them and form the beam for them as well using our implicit beamforming technology, which is unique and it's important in an enterprise where you've got a very diverse set of devices in the enterprise. They're not all on the latest generation wireless, even though you've upgraded your access points. Altogether, the strength of this platform continues to drive the leading edge of performance and keep us in the lead when it comes to the enterprise access point space. Now tomorrow's home will look more like today's enterprise.
What we're seeing is a proliferation of devices in the home as we connect our refrigerators and garage doors and thermostats and everything else, the number of users explodes. And all of those aren't particularly caring about performance, meaning the bandwidth, but everything else is as wireless becomes the distribution layer for video within the home. And we have all this streaming video tablets and streaming video devices in the home that command ultimate performance even in the face of growing multiple concurrent users. And so our same technology that made us a leader there is helping us to expand our business in these new high end connected home access points and the streaming devices that provide the performance that are needed for the video streaming services. And what we're seeing generally is a move where we used to have Wi Fi as almost a given time with your broadband connection to now a whole new set of high end home access points that consumers are going out and paying real money for.
And rather than talk more about it, I should let one of our customers tell you more about how they're seeing that play out.
My name is Yuchang Song. I'm Vice President of Engineering at Falcon Linksys. Linksys is the leading provider of wireless routers and networking equipment for homes and businesses. Today, more than 7% of the homes have 5 or more networking devices connected to their Wi Fi. And this is going to grow as more smart devices come online.
Speed matters and our WRT routers are blazing fast. And you can basically have multiple 4 ks videos, play online games and have multiple smart devices connected to the Wi Fi without compromising performance or network connectivity. One piece of delivering this consistency is our partnership with Marvell. We've been working with Marvell for more than 10 years, and we use our Wi Fi solutions as well as SoCs, PHYs and switches on our high performing routers as well as on the SMB side, we use the switches and PHIs for the networking solutions. Marvell also works with us continuously to reflect our needs into their future roadmap that will actually help us differentiate ourselves in the market as well.
That's what makes Marvell a great partner for Linksys. WiFi has become the center of our lives, and we believe that we are providing the best solution for Wi Fi to our customers. And we found through our surveys that Wi Fi has become the 2nd most important thing in people's lives after COVID. Our model is Wi Fi for life, and people expect the connectivity to be as reliable as running water or electricity. In our industry, Linksys is a performance leader.
And with partnership with Marvell, we'll be able to provide great Wi Fi solutions to homes and businesses around the world.
So at least we can agree that it's important in the home and that performance will be a leader in this space and Marvell is helping them do that. Another market that we're excited about that cares about differentiated technology is the automotive space. Until recently, wireless access has been more of a luxury in the automobile. But with some of the things that are happening now with Apple CarPlay and Android Auto and Baidu Car Life, we expect to see vehicles to adopt wireless access as a key part of the technology throughout the product line. And this is also a market that values differentiation.
If you think about the relative value of Wi Fi to a Barbie house or something like that versus a car that's going to be built over a period of a decade and supported over a period of another decade, the level of quality of technology in the latter is far more important than in the former. So this is a space that we've targeted early. We've also found that it's a space that allows us to differentiate. So if you think for a moment about what happens inside a car that needs to support screen sharing for Apple CarPlay and a Wi Fi hotspot for the screens in the back seat and streaming Bluetooth, audio or hands free calling all at the same time, all from within 1 chip. It's a complex solution.
Marvell invested early in this space and has a unique multi antenna architecture that creates enough separation between the antennas that we're able to deliver very low interference and high performance solution that can do all of this at the same time. This is why we're getting adopted in cars today. And although today, what's actually shipping is a small number of vehicles, we're actually number 1 in the automotive Wi Fi space. We have all the customers to show that and they're using our technology and we're currently designing into the next generation of vehicles. We also see 802.11p as an adjacency in this space.
We're sampling products in that today. What this will allow you to do is to have the vehicles communicate with other things, vehicles to vehicles and generally V2X communication. This is a new standard that's being developed, which will which we think, if widely adopted, will really drive wireless solutions throughout the connected car of tomorrow and throughout the product line of these automotive companies. So as you start to see that proliferate, you should expect to see Marvell grow with that. Okay, so we covered a lot of ground.
We talked about our networking portfolio where we have a lot of strength and we've refreshed and refocused our portfolio to grow in enterprise by taking share how we're entering the data center market in a meaningful way, but in a very careful and targeted way and how we've repositioned our wireless products to a market of high performance and high reliability where we can get the value for the differentiated technology that we build. Finally, we're expanding into new markets that we think will demand these types of high quality solutions from us going forward. Together, this is helping Marvell, and this is what we think is going to let us grow going forward. Now let's take a quick okay. Hopefully, we still get a break.
Yes. We're going to take a 10 minute break. We're running a little bit behind. So be back in here by 11:35 latest, and we'll Jean and I will bring you home. So coffee and restrooms back through the hallway back there.
Okay. Start heading to your seats. I want to get you guys out into the snow as quickly as I can. I am. I'm kind of sort of goosing them back slowly.
Okay. You guys want to start working your way back to your seats? We'll get started again. I'm herding them back. We're getting them back.
Okay. I want to get you guys out into the snow as quickly as I can. Okay. All right. So let's get started, guys.
Let's get this thing going so we can get it done. So as many of you know, it's a bit unusual to have sales and marketing presented at one of these investor conferences. Normally, you want to hear from Gene and Matt, Dan and Chris, you want to understand the product strategy and direction. And so you normally hear from them. And as a matter of fact, not only do I not normally present at these sort of conferences, I don't normally attend them.
I'm usually out meeting with the people who are going to drive our revenue, drive our profits. As far as market cap is concerned, that's Gene's department and I'm not normally here. But these are not normal times, okay? Last year, this company went through a fairly dramatic series of events that left a lot of our investors and our stakeholders wondering, did we still have the customer locked? Were we still engaged with the customer?
Or did we create a lot of irreparable damage that we couldn't recover from? And so that's why we thought, okay, for this conference, it's probably legitimate for sales and marketing to give you an idea about our relationships with our customers and what we're doing in the sales side to actually make sure that the strategy you heard put forth this morning is successful in the customer community. And so that's why I'm presenting today. So first of all, you heard from a few of our customers this morning. As a matter of fact, you'll hear from 7 of them today, and you heard it in English as a first language, English as a second language, even heard it in Mandarin.
So it sort of speaks to the global footprint that we've actually created at Marvell. And we cast a fairly broad net when we started the idea of customer testimonials. And 7 of the 8 people we talked to responded positively. As a matter of fact, the 8th one wanted to actually do a testimonial with us, but logistically, we couldn't make it work. But 7 of the 8 actually responded positively.
And these are some of the things that you actually heard this morning. Marvell has great technology. Marvell goes above and beyond. Marvell is a trusted partner. Marvell stands the test of time.
So that should certainly speak about speak to any concern that may be out there about whether we maintained our customer lock and whether we have it going forward, okay? Now, I know a lot of you out there, I know a lot of you are thinking, why did you join Marvell? You had to be fairly comfortable coming out of your last gig. You're getting kind of old for this worldwide sales stuff and another global gig. Aren't you getting a little too old, fat and ugly to do this kind of stuff?
And so I figured in order to answer that question, I'm going to tell you a little story, okay? So first of all, as Matt said, he and I have known each other for a long time. And when he was named to the CEO of Marvell, I sent him a text message and that resulted in a series of texts and conversations that culminated with Matt saying, why don't you consider joining us and helping us get this thing back on the right track? I said, all right, let me take a look. Let me look under the hood.
So this is what I found. First of all, when I looked into the technology toy box, it was chock full. World class technology and technologists inside this company. And so when the team looked last year at how are we going to reduce our focus down to the markets that are going to drive growth and return the greatest amount of value for our shareholders, there was plenty to choose from, okay? And so that certainly was a very pleasant surprise.
The second thing I saw was as we focused our resources down onto our chosen markets, we deemphasized R and D investment and watched our expenses in other markets and improved our operational efficiencies, our revenue started generating profit. We started generating cash from operations. And that actually gave us the ability to add cash to an already healthy cash balance of $1,700,000,000 and no debt to service. So I said, oh, geez, profitable, strong balance sheet. And then I started looking at the customers and the customer relationships.
You heard from 6 so far, you'll hear from 7 today. And when I went to CES this year with these guys, we had some 200 meetings in 4 days. And I've also met with a lot of our largest customers. And what I'm hearing consistently from them is 2 things. Thing number 1 is as the semiconductor industry consolidates down, they are pairing their supplier base.
They're reducing their supplier base and they're focusing on creating deeper, stronger relationships with fewer suppliers. And the second thing they're saying is Marvell, you are a vital part of our supply base going forward, okay? And so this is a pretty strong statement. Our customers have a vested interest in our success. So when I looked at this and said, geez, world class engineering, great technology, profitable revenue and a strong balance sheet and customers with a vested interest in our success.
The question should have been why didn't I, why wouldn't I join Marvell? This is an exciting time for the company. We're going to have a lot of fun getting this thing back on track and back on a growth trajectory. Now there's an old saying out there that says, if you want to catch big fish, you got to fish where the big fish are, okay? And so the first order of business as we get there is we have to align this sales organization to catch the big fish, okay?
Now the funny story about this slide was our agency when they first said, oh, you can't show this. This is sport fishing. It's no longer politically correct. You're going to offend your audience, the picketers up at Trump Tower are going to move down to St. Regis, they're going to protest your presentation.
And I got to thinking about it. And I said, well, this is Wall Street. These are investors. These are meat eaters. They're not going to get offended by this slide.
So we left the tuna slide in just for you guys. Yes, going to need a bigger boat. So the first order of business when I got into this thing was I got to align the sales organization for maximum success in our target markets with our target customers, okay? So what does that mean? Okay.
First thing you got to do is you got to look at the coverage map. Where are the big fish? We got to make sure that we're aligned with them. And so you've seen there's been a series of reductions at Marvell. The last one, I actually reduced the sales organization.
I had to because we had people in areas of the world where there were no longer target customers. And I'm replacing them with people in the areas of the world where our desired and target customers sit. So with the sales strategy, we aligned our most valuable resources in those areas where the target customers were. We use a hybrid sales approach. I have sales reps and we're actually restructuring the sales rep organization.
We're adding some mega reps for broader coverage and greater focus. We're adding reps that are targeted at selling networking product lines. And we're augmenting that with global distribution. And we're looking we're reexamining the entire global distribution network. And we're going to be reducing our distribution network, getting it more targeted, more focused on our target markets, okay?
We're training our sales organization on how to manage large accounts, large account management techniques, strategic selling techniques, giving them all the tools, the collateral and things necessary to increase their close rates at the customers. And the last thing we have to do is we have to improve the awareness for Marvell. We have to improve the brand and brand equity. You're going to see a lot of activity and marketing around these chosen markets in the coming year. Outbound marketing campaigns and events like this, conferences, press releases, even a social media campaign to actually get improve the awareness of Marvell in our target markets.
And finally, we're going to be spending a lot of time throughout the customer chain, from our customer to our customer's customer all the way down to the end user, making sure that that entire value chain is aware of and has a preference for Marvell technology. So that when our customers go to sell, their customers are saying, what about this Marvell stuff? And creating a greater awareness of our technology. So the first order of business, get this sales organization aligned, that's what we're doing. And we're aligning them on these markets, okay?
I already told you, we're putting our highest value resources near these customers, in these markets. We're embarking on an effort to upgrade the field technical resources near these customers, bringing the product knowledge and education closer to the end customer so that we can close in a more efficient manner. We're moving to single opportunity system across the company. So everybody knows where the large opportunities are, who's involved and what their actions are. And we're doing an extensive outbound marketing campaign.
And the first thing that I did this year when I looked at where we were spending money and on what conferences, I whacked about 5 of them, because these were conferences in markets that just don't service our strategic direction going forward. Most recent was Mobile World Congress in Barcelona. By not going to that conference, I was able to save the company about $150,000 and redirect a chunk of it into the open compute platform forum that went on in Santa Clara this week, where it was chock full of customers from these industries, okay? So we were meeting with the likes of Facebook and Cisco and Dell and HP and Arista. We had a keynote address at that conference, another speaking engagement.
So we were actually able to focus down with that gold sponsorship on a bunch of very valuable meetings that were targeted on our customers that we want to do business with in the data center and in the cloud. So that's what we're doing as we go forward to be a lot more focused and targeted on our messaging and on our strategy. Now I'm a sales guy. So now that I'm done with that message, I have to talk out of the other side of my mouth and tell you about adjacencies and optionality in our markets, okay? We spend a lot of time talking about the center of that picture today and how we need to widen the pipes because there's so much information being created around the periphery, around the network edge that's coming into that network.
And we've talked about the consumer IoT. There's a lot of activity over there from virtual reality gaming and augmented reality and PCs and connecting your thermostats and printers and toasters to the Internet. And that's all well and good. But there's a whole segment over here on the right that I like to call commercial IoT. And these are the markets where massive amounts of data are being created on the edge of the network, processed and sent back to some aggregation point.
And there's a whole phenomenon in there that we like to call edge computing. And we want to talk a little bit about that because all of the products that are being created to make those pipes faster and perform higher are also able to service these markets. So you think about a smart city, for example, you got a Wi Fi mesh of interconnected cameras tracking the movement of people and vehicles through the city, okay? High end gateways, bringing massive amounts of disparate data and ripping it apart and routing it to the right place. Smart cars, the amount of data created by an autonomous driving car is phenomenal.
It would just stagger the imagination. Oil and gas exploration, anything from seismic analysis to drilling to maintaining the rig creates massive amounts of data in an area of the world more likely where they have a very low bandwidth connection back to the cloud, so it has to be managed locally. And all the way down to automated factories, these factories that have machines that do automated processing and measure the milk fat and cheese or the roundness of a ball bearing, They get this information back. They take an action on this information and then they send it back to an aggregation point. Every one of these things is doing edge computing and sending data back to that cloud, okay?
So let's talk about one of those. We talked a lot about automotive today, okay? Car industry is going through rapid transformation. There are 3 disruptive trends: connectivity, autonomous driving and new energy. And these trends are driving an explosion in sensors and data collection, okay?
So the cars that are out there today, the ones that are being driven around today, they have CAN buses. These are 1990s technology buses. They're all separate. They're all disparate. They take care of whatever part of the car they need to take care of.
The problem with the CAMBUS was it was a pseudo standard, few suppliers, it had a limited lifetime. So the car company said, we want a single standards based scalable data backbone that could scale with their needs. And that was the birth of Automotive Ethernet. That happened a few years back and there's more and more and more traction around taking Ethernet as the single backbone to the car and replacing all of these disparate buses. We are already engaged with and have wins with many car companies in 100 megabit and gigabit PHYs and switches today, okay?
So if you think about it, you add this move to automotive Ethernet to the established our established automotive Wi Fi business and Chris just talked at the very end about our position in the automotive Wi Fi, we're well positioned for data movement. And if you're going to be moving all this data around the car, it's got to go somewhere. There's a movement to bring our flash control into the automobiles. And so if you look at all the products that were created for that cloud, Wi Fi, switch, processor and flash control, they're all finding their way into the car, leveraging that R and D investment into an adjacent market, okay? So now because the car is changing so greatly, the automobile electronics are going through a sea change of transition.
New technologies like self driving cars over the air updates, subscription based applications really does turn this vehicle into a server on wheels as Dan had said earlier. And that continues to drive the proliferation of sensors and the data that needs to be stored. Now the interesting thing is, I saw the other day a commercial for Toyota Corolla. The Toyota Corolla is now adding collision avoidance as new feature for next year's car. The Toyota Corolla, this is the bottom line of their platforms.
So if you look at it, we're certainly not all that surprised by the proliferation of intelligence and autonomy on the high end platforms. What's surprising to us is how rapidly this technology is driving to the base platforms in these vehicles. And so this is in fact creating an even larger market for us at a more rapid place than we had even imagined. And so this is one of the market adjacencies. And so if you think about the edge compute system, every one of these things and I don't care whether it's Wi Fi connected cameras or automated machines or smart cities, self driving car, they all do the same thing.
They sense data, they put that data in memory, they process and filter that data and they send it somewhere else. And every one of our products that's being developed for that core market, that little product in the middle can be sold into this market. Our multi core CPUs, our flash controller and any one of these devices to take the data off of the controller, Ethernet, NVMe, Wi Fi. As a matter of fact, I've got one of our distributors in Asia designing this board because they have a whole plethora of suppliers who put these products into automated factories and write software for it. And I said, well, if they're going to write software for automated factories, they may as well do it on a development kit that we create.
So we're actually creating almost an exact version of that product to actually send into the automated factory market. So I told you what my first order of business was, get the sales force lined up to be successful in our target market, okay? 2nd order of business is I'm going to take all of that intellectual property that's being created for a target market and we're going to drive it, storage, networking connectivity into those adjacent markets and increase our sand by 1,000,000,000 of dollars. And so that's our second order of business as the sales organization. So if I can get you to take anything away from my talk today, I would say first, we're actively and aggressively restructuring the sales organization.
I hope to be done with most of the moves by the middle of the year and then we just basically continue to increase and drive the efficiencies and competencies in this organization. We want to put our most talented, our most valuable resources out there so we can actually go after the big fish. 2nd, more fundamentally, we have a customer base with a vested interest in our success. They're working with us. They're actually collaborating with us on roadmaps.
They're making sure we're doing products that they can buy going into the future. They want us to be successful. 3rd, we're going to get our message out. I already told you, we're going to be targeted in a very, very aggressive manner this year around the data center, around the cloud and getting the message out through a lot of outbound marketing campaigns and through a lot of business development work with the customer supply chain all the way to the end. 4th, we have an amazing set of technology.
We're going to leverage that technology into that expanded SAM to drive additional growth. And so, as I had said earlier, the fact that we have world class technology and technologists, profitable revenue and a healthy balance sheet and customers that want us to be successful has created a phenomenal platform for us to launch into future growth. And so that's why I actually came to this company. And this is going to be a lot of fun driving forward. But don't listen to me.
I'm going to let you our last customer today, one of our largest customers tell you about what we're doing. We'll let you see from Rubik at Western Digital.
I'm Rubik Babakamian, Chief Procurement Officer of Western Digital. Western Digital is a leading provider of storage technologies and solutions. We provide hard disk and flash disk based technologies for consumer, enterprise and cloud based environment worldwide. We have been working with Marvell over 20 years. We have been using Marvell storage controllers and re channels in over $2,000,000,000 of Western Digital products.
We're using Marvell SSD Controllers in our Sandisk branded products. And recently, we are using Marvell pre amps in our latest 2.5 inches client solutions. Marvell defines what it means to be a true partner. They work with us on roadmap, design and qualification. Marvell does what it takes to make Western Digital successful.
Marvell has been a pioneer in rechannel and as such they continue to invest and develop technologies that help with time to market and power efficiency and overall system performance. Marvell is taking innovative approaches in making investments in new technologies such as convergence of storage and networking. And as such, through the innovation and investment in technology, we believe Marvell is committed and a good partner to be in this business with us. We are in an era where data is creating a world that's more predictive, more productive and more personal. It enables creativity and discoveries and enables deeper connectivity.
Western Digital is enabling the world with new ways of utilizing and leveraging data. We have been the largest Marvell customer in several years in a row. And with what's in the pipeline, we anticipate to remain a top customer for years to come. Together with Marvell, we will continue to power the technology and create solutions that will deliver the possibilities of data.
Okay. So my name is Jin Hu. I'm CFO of Marvell. I joined Marvell last August. So it has been a very exciting and fun journey.
And I'd like to take time right now to thank everyone spending time with us today and your interest in Marvell. So this morning, what you have heard from our team is Matt talk about our focus and strategy in storage, networking and connectivity and the tremendous opportunity ahead of Marvell. And you also have heard from Dan and Chris to talk about why Marvell is uniquely positioned to create value to drive top line revenue growth. And Tom just talked about the building go to market capabilities and expand and drive our revenue growth opportunity. You also have seen our new leadership team.
So the longest tenure actually is just 9 months, but we have achieved a lot and did a lot together as a team. So as a team, when we think about creating shareholder value, the way we think about it is we want to build a strong business to generate a top line revenue growth and also generate a consistent and sustainable long term cash flow. And as a company, we are uniquely positioned. We have 3 drivers that we can leverage to create value for shareholders. The first is revenue growth.
The second is margin expansion. The third is that we actually have a very strong balance sheet and a very strong financial flexibility. That's another lever we can delever to create value for shareholders. So I'll spend the next few minutes to cover 3 topics. First, I'll do a quick recap of our restructuring plan and also talk about fiscal 2018, the current fiscal year.
2nd, I'll tie together what you heard this morning from our team about the top line revenue growth opportunities and what it means to our long term top line revenue profile. I'll also talk about the margin expansion opportunities Marvell has and what it means for our long term financial model. I'm sure you're all waiting for that. And the last is capital allocation, which we have a very strong financial flexibility. So to deploy capital to create value for shareholders, that's another important lever.
Okay. First, let me do a quick recap of our restructuring plan. So when Matt joined last July, we were just finishing the first half of our fiscal twenty seventeen. So at that time, we reported the gross margin for the first half to be about 53.6%. And the operating expense run rate annualized run rate was $1,100,000,000 So Matt mentioned earlier, the team got together.
We went through a rigorous strategy and portfolio review. 3 months later, last November, we announced our restructuring plan. Here's what we said last November. We said we would expect our gross margin to get to 58% to 60% in the second half of fiscal twenty eighteen. And we also said we're going to cut our operating expense by $240,000,000 to $260,000,000 to get to an annualized run rate of operating expense of $220,000,000 to $240,000,000 exit Q4 of fiscal 2018.
So I'm very pleased to update you. Last week, when we reported our Q4 fiscal 2017 earnings result, we guided the Q1 fiscal 2018 gross margin to be approximately 59% and we now see we'll get to 59% to 60% gross margin in the first half of fiscal twenty eighteen. On the operating expenses side, last week we said we are 1 quarter ahead of our restructuring plan. Now we actually see we'll narrow our operating expense run rate to RMB820 1,000,000 to RMB830 1,000,000 exiting Q3 fiscal 2018. So as you can see, our team is executing extremely well and we are ahead of our plan.
Now I'd like to provide you some perspective on fiscal 2018. So typically, we don't talk about fiscal year comments provided the fiscal year comments, but we're right in the middle of restructuring actions. There are few dynamics that we do want to take you through. So Matt talked about earlier is when we cut our operating expense, it's about 25% of the company's operating expense. It's a very large cut.
It's about $250,000,000 And but when we look at the revenue associated with most of the operating expense, it's actually either consumer focused or it did not yield return on investment. So we classified all those revenue under this other category. Those revenue will decline in fiscal 2018. As a result, we expect the revenue from other category to decline approximately 30% in fiscal 2018. But on the other side, if you look at the area we're investing, which is storage, networking and connectivity, All three businesses are going to grow in fiscal 2018 and more than offset the decline in the other category.
So this is the revenue picture we're thinking about in fiscal 2018. Now let's look at the profitability. As I mentioned earlier, we are ahead of plan. When we execute on our gross margin improvement plan and operating reduction plan, you can see we're going to see very significant margin expansion in fiscal 2018. So over the year, if you look at the contribution from gross margin expansion to our bottom line and operating expense reduction to our bottom line, we believe we expect to grow our earnings per share by approximately 60% in fiscal 2018.
It's very significant. And as a company, when you look at the fiscal 2018, it's really a year Marvell is building a strong business model. It's a year of transformation and building a foundation and from this foundation, we're positioned very well to grow Marvell. Now let me shift gear to the long term view of the company. First, on the revenue growth.
So you have heard Matt talking about the fundamental demand drivers to drive the market we participated to grow much faster than overall semiconductor market. You also have heard Dan and Chris talk about our strategy to grow the business much faster than the market we participate. I want to talk about storage first. I think we all agree storage market overall is growing because the demand for storage capacity is growing much faster than the supply we can deliver. And you heard Dan talk about that we are really agnostic to where the storage market goes because we are one of the very few companies who has the depth and the breadth of technology, IP portfolio and engineering expertise to address every storage market no matter where it goes.
And that is actually why we are the market leader in HDD market and also the market leader in SSD market. Then also talk about it, we are the only company who can provide all the solutions in different segment of SSD market, which as you know, it's very dynamic market and there are a lot of innovation going on. So let's talk about the planning assumption. When we think about the financial model, I look at the spreadsheet just like you guys every day. So on the HDD side, so our planning assumption is really we hold a very cautious view about HDD market.
We expect HDD market actually to decline lowtomiddlesingledigit in next several years. And accordingly, we actually think HDD market is going to grow around 15% CAGR in next several years. So in HDD market, you heard Dan talk about we're going to expand our market position in nearline and the cloud data center to gain incremental revenue. Secondly, we're investing in the preamp opportunity. Even though in fiscal 2018, we don't expect meaningful revenue from this opportunity.
But in the longer term, we do strongly believe we'll gain a fair share of market because of the technology leadership and the market positioning in HDD market. So when we look at both the incremental revenue from preamp and also the opportunity in the cloud and the nearline, we can offset the overall HDD market decline to keep our HDD business largely flat. On the SSD side, it's really exciting for Marvell. Dan talked about it. We already got revenue to be more than 20% of storage revenue in Q4 fiscal 2017.
And when you look at the opportunity, we are participating literally every segment of SSD market. So for us, we're very confident we can grow our SSD business much faster than the overall SSD market. And I'm pretty sure you ask me all the time is, okay, how about HDD market decline much faster than the planning assumption we're using. So I would say, if that's the case, it has to be SSD market is growing much faster than 15% we're planning or there are some new technology in the market that fill the gap because we all violently agree the storage capacity is increasing much faster than we can deliver. So from that angle, when you think about the Maval, really we are agnostic to where storage goes.
We have the dynamics of the market to be the leader and to gain share in this market. So we're very confident we can grow our storage business faster than the storage market. We can model I model all the way from between the mix of HDD and SSD. And the important takeaway is we're agnostic and we can address all the opportunity. Now look at the networking.
Chris talked about our refreshed portfolio of 25 products in SoC switch and transceiver side. And it's very important because for us, this whole portfolio literally is driving a unique product cycle for Marvell and we're literally at the beginning of this product cycle. So fiscal 2017, our networking revenue grew 13% year over year. So when you go through the product cycle with us, not only the design wins we already have 1, it's going to ramp into revenue. I don't know if you guys noticed because I'm Chinese.
So the H3C guy actually said, oh, new product will ramp in 2017. So and at the same time, it's also true is we continue to get strong tractions in that working market and the winning designs with all the customers Chris talked about. So when you look at the networking market, it's growing 6% to 7% and our opportunity to grow much faster than market is absolutely very, very near and dear to us and we think we can deliver that. On the wireless connectivity, this is the business as Chris mentioned. We're literally just going through the transition and just complete the transition to get out the low margin WiFi business.
And in Q4 fiscal 2017, we said the wireless connectivity business is bottom. And going forward, really when you look at the segment that we're focusing on, either it's enterprise access or automotive market, we are both number 1 in those two markets. All the newly connected home market, we are getting strong attraction because of the performance of our wireless portfolio and the technology. So I really like what they said is Wi Fi is second to food. I cannot agree more with that.
For me, Wi Fi actually number 1 because without wireless access to food, I don't care that much. And so I think it's very important is the Wi Fi market is growing very significantly. I think Marvell will be there to address this market growth opportunity. So when you put it all together, our core business will grow faster than the market that we participate. And by the way, I did not expansion opportunities.
For instance, Ethernet Automotive, we actually have very strong design wins and strong attractions with all the major customers. If those design wins become revenue in fiscal 2020, there will be upside to our model here. But we are not including the current view how we want to help you to think about Marvell Financial Model. For modeling purpose, we are modeling other product line to decline 10% or less. So for some of you, you may remember Maval has actually has one of the nice portfolio of printer business and the customer ASIC business.
So those businesses are not growing, but they're actually not declining either. Mimele probably is the only printer silicon ASIC supplier left silicon ASIC supplier left, but that market is going to last very long time. So this other product line is actually going to decline and getting to be a very smaller pie as Matt mentioned earlier, but it's probably one point to offset the overall company's growth rate. So that's on the revenue side. Let me talk about the margin expansion next.
On gross margin side, this is really a focus of the company from Matt, the whole team and our Head of Operations. If you look at what we have done is really there are 2 drivers on gross margin. 1 is product mix, the other is cost reduction. On the product mix side, we have we're getting out all the low margin consumer business. So that will improve our product mix.
If we look at our fiscal 2018 model, we believe that will contribute approximately 40% of gross margin improvement. On the cost reduction side, our team has done a fantastic job. So the Head of Operations and the whole operation team really did great on supply chain management across all side of supply chain. So we actually are expecting close to more 60% of gross margin improvement coming from the supply chain management side. It's an effort for the last 9 months, but the full benefit of the cost reduction started to factor into the overall Marvell model.
So after we get to this 59% to 60%, we certainly have an objective to continue to drive the gross margin higher. And really there are 2 things we need to do. 1 is the product mix. What we believe is when we launch new product, when we ramp up the new product into the product line, because we have Tom as our Head of Sales. I think the gross margin will be better for all the new product we launch.
So that will help us to continue to improve gross margin. And on the supply chain side, we're going to continue to improve our supply chain management the efficiency, but that will be more comparable to all the other semiconductor company are doing. So you can tell don't measure it by the way, but you can tell the green box going forward on supply chain management side will not be as significant as we're doing currently. But overall, we are going to improve our gross margin to be greater than 60%. So some of you probably are going to ask is what do you mean greater than 60%.
Is it 61% or 62% or 63%? Percent? I think just hold your thought. I want to talk about in the whole context of our long term financial model. Next on the operational excellence side, operating expense management.
So Matt and the team is really building a culture inside the company to really build a machine execution machine to focus on execution and the business. So what we're doing is we actually are implementing a very rigorous R and D review process to track, measure and also manage our R and D investment, so we can improve productivity significantly. Also we're centralizing the procurement functions. And as Matt mentioned earlier, this company actually did not have a centralized procurement function. When you think about how much money we spend as a company, this is unbelievable.
So again, it's about tracking, measuring and also managing the overall spending of the company. And the other thing we're doing is we're simplifying organization layer and the structure. Those take time, but we'll get there. It's all about efficiency of the company. In the longer term, we are building infrastructure and the processes, so we can really grow the business and support the scale going forward.
We are automating the process too and try to establish a shared service center to further reduce cost to improve efficiency. Of course, the other thing is about the site consolidation. During this current restructuring process, we have consolidated our sites significantly, but there's always more to do because Mabel, as some of you know, we actually own a lot of buildings we occupy in different countries. So our view is when we consolidate the site, some of the foreign side, if we don't need the office building we own, we'll monetize them. And of course, our largest site is our U.
S. Campus. We also own the whole real estate there. So our view is that we always want to figure out a way to see financially what makes the most sense for shareholders and for the company. So over time, that's a longer term target, but we're going to continue to optimize our site strategy, how we can increase the density of site operating more efficiently as a company.
So overall, we are targeting our R and D as a percentage of revenue to be 22% to 24% in the longer term and we are very determined to target our SG and A percentage of sales to be around 8%. So let me get all together to take you through how we think about our long term financial model. So from fiscal 2018 to fiscal 2020, we expect our top line revenue, the core business to grow faster than the market we participate. On the gross margin, we expect to be greater than 60% during this period of time. Our R and D as a percentage of revenue, we are targeting 22% to 24% and SG and A as a percentage of revenue, we're targeting 8%.
Of course, our objective is to get to approximately 30% operating margin. Marvell actually has a very efficient asset light business model. Our capital spending is about 1% to 2% of revenue. So the beauty of this model is our free cash flow as a percentage of revenue actually is very close to our operating margin. So this is a very powerful and compelling financial model.
It's about in the end of you guys know, it's about sustainable consistent free cash flow. That's the value of the business. Now let me shift to our capital allocation. So we had about RMB1.7 billion cash in end of the fiscal 2017 and with the business model especially the free cash flow percentage as the revenue is approximately 30%, our business is going to generate a very significant cash flow going forward. So that's a tremendous financial flexibility.
And the way our team think about capital allocation is really a balanced and disciplined approach. A balanced approach means we're going to focus on investment as our number one priority organically, all through acquisition. And at the same time, we're very committed to return cash to shareholders. We're going to keep our dividend payment and use buyback to return cash to shareholders. And as you know, our Board of Directors authorized the $1,000,000,000 buyback plan last November.
And since then, we have been actively buying back our shares. In the longer term, we are implementing a policy to return at least 50% of free cash flow to shareholders. That's the way we think about in the longer term, we do want to make that kind of commitment as Marvell's policy going forward. So let me summarize. As a team, we're really executing well and try to get the restructuring and complete that on time.
And we are building a very compelling long term financial model. And last, we have a strong financial flexibility and we're going to utilize it to deploy capital either create more value or return those cash to shareholders. With that, I'll turn the to Matt for a summary.
Thank you, Gene. I thought you did a fantastic job. Everybody get excited by all that? Everybody ready for lunch soon? Okay, great.
And again, Gene, great job and also the rest of my team today and all the Marvell team members that actually worked really hard to pull this day together. I want to say thanks. So as you can see, I'll just end with quick closing notes and then we'll do a little Q and A and then we'll I'll break for lunch where you can have some more informal discussions with myself and the team. But basically, look, we're very excited, as you can probably tell from all the presentations and our body language and our emotion with the future prospects of this company. We've got great technology.
We've got great customer partnerships. I think you heard it directly from the customers themselves. And overall, I want to reiterate my belief, which is that Marvell can grow organically and participate in the growth rates of the markets that we're servicing. So it's an exciting time to be involved with Marvell. It's great to have you all here.
With that, I'm going to have my team join me on stage, and we'll do some Q and A. And then we'll go grab some lunch. Okay, come on up. Are we on?
Okay. So we're going to try and do about 10 minutes of Q and A. There'll be microphones in the audience. You guys know the rules, who you are, where you're from, who the question is directed at. If you don't do that, we reserve the right to not answer your question.
How's that for a legal disclaimer, Mitch? I see Mitch has approved of that. So
Thanks for taking the question and thanks for all the information today. Craig Ellis at B. Riley. Appreciate it. The question is regarding the 6% growth rate.
Is the intent to be growing at that rate in fiscal 2019 matters that after a period of investment in some of the products and SAM expansion initiatives that were outlined by some of the presenters? Sure. Yes, happy to answer that question. So I think the way we think about it is, again, tried today to paint a picture of the markets that we're in and what growth rates those are at. As Gene alluded to, we've got this period of time we're going through restructuring where we've got this other product roll off, core growing actually quite nicely.
So overall, we think of that as sort of a post restructuring growth rate that we aspire to attain. So again, if you heard today with the product portfolio and the lineup we have, that's a growth rate that we'd like to see ourselves in, again, post restructuring, 2019 and after. Yes, right here. Let's go up here. Let's get a mic up here closer, please.
Yes. It's John Pich with Credit Suisse. Thanks again for all the information. I guess my question, two quick ones for Dan on the storage front. 1, when you think about hard drives kind of being flat, to what extent does that include the preamp and who's supplying the preamp today?
Who do you expect to take market share from? And then just a broader question on storage. A lot of people have made the point that you're kind of agnostic to the medium. I want to challenge that a little bit. I mean, if you think about sort of a dollar per exabyte or gigabyte of storage, HDD versus SSD, it seems like actually the dollar content on SSDs per volume of storage is significantly higher for you.
So why wouldn't sort of the SSD, HDD to SSD transition that a lot of people are worried about actually play as a strong growth driver once you get through kind of that initial transition of HCD being the vast majority of the market today?
Yes, repeat The HDD
guidance was flat. To what extent how much is that as TAM versus market share growth?
Yes. We weren't really including the preamp in what we showed today, right? We showed the kind of maintaining is, I guess, that's the point, right, Jean, without the preamp in there? Yes.
I think if you look at the HDD market, the overall market, our planning assumption is to decline about 4%. And when you include preamp, the preamp market actually is growing slightly. It's about 3%. So when we look at our incremental revenue opportunity in preamp beyond the fiscal 2018, It's a long cycle product. And also the market share gain in the cloud and the nearline, when you add those together, that's how we look at the HDD market and that can offset that 4% or 5% decline of overall market.
So it's between both, right, the share gain in Airline and Enterprise Cloud and also the preamp incremental opportunity. I think to just answer your pre amp question is, this is the market that there are only 2 players, primarily 2 players in the market And the one off incumbent, they don't have the HDD business anymore. So for us, we have HDD business. It's a natural leverage like Dan talked about it. And yes.
Yes,
that's good. Yes, and then the second part, I'll take just because I think you pinged me on this, so I've actually had a chance to think about it where he hasn't. So I'd make one statement before I answer that, though. As you've just as a tone issue here, I think as you've all seen today, hopefully, you picked up on something, which is we took a very modest, conservative, thoughtful view of how we presented our business today. The preamp was one example.
We actually consciously decided, let's not put that in there as the SAM to make it look better. We just said, hey, that's upside if we get it, so take it out. Same thing actually on automotive, right? I mean, we know for sure we've got a very strong automotive design win pipeline. I mean, I've been personally engaged with those customers.
We feel good about that business, but it's not a near term growth driver. And so we wanted the investment community today to really get a good clear picture of the Marvell today and have a mind to not oversell in the future, although we're very excited about it. So just as a tone issue, some of your questions may be around that. On your question specifically, which was really, hey, if you sell an HDD controller into a terabyte drive, let's say, and then you sell an SSD controller into a flash drive that has a much lower memory capacity and it's the same ASP, aren't you getting more ASP per byte? And you're absolutely right.
It's absolutely a fact. And it's true. We intentionally, to my point, did not model that and sort of try to even make that claim at this juncture. But that's a true statement. You could actually argue as SSD grows and we're agnostic and we're with the right customers, there's actually an opportunity there.
But it's not modeled today for the reasons that I mentioned.
Tim Arcuri, Cowen. Thank you. I guess my question is on M and A and sort of how you balance your comments about capital return. You're going to generate $750,000,000 a year roughly per the model, of which you're going to return half. So you'll have a couple of $100,000,000 per year.
You have some real estate, you have some cash, you don't have any debt. So and the focus is really in networking, but the assets
that you could buy in
networking are pretty big. So I guess I'm wondering how you think about balancing taking on debt onto the balance sheet, levering up to do something more sizable in networking?
Thanks. Sure. Yes, I'll answer the M and A question. I'll have Gene add to it. So it's a common one, right?
It's really what's how does that play into our capital return thoughts and policy. And I think as I stated when we even announced the $1,000,000,000 buyback, right, which was, hey, we want to try to have a balance of returning cash to shareholders, but maintaining flexibility and some firepower if we want to go off and pursue some M and A, especially on things that are close to what we do. And we're still in that mode of maintaining flexibility. We're not mature yet enough in our journey to kind of be and I think it was you or somebody else that's framed it as, hey, are you a TI, which was Return It All? Or are you a Broadcom, which is aggressively deploy it towards M and A?
And we're still trying to strike that balance. And we're also trying to strike that balance in the context of a restructuring plan that we bid off that was quite substantial and that actually we're driving ahead of schedule. And so to get all that executed is keeping us busy. So those are the dynamics that you should think about. But the last thing I'd add is that as we've gotten more settled into the company, and I think you've now gotten a preview more out of the black box of what the assets of the company look like.
You can imagine that Marvell is really a platform technology company with a lot of scale. And our ability to actually capture synergies if we were to go off and pursue M and A actually, I think, is meaningful because of the current size and portfolio of assets that we have in the company. So can't answer it exactly head on, but I'm trying to give you a framework of how we think about it today being 7 to 8 months into our journey here at Marvell.
He's been trying for a long time. Yes.
Keep the mic closer, Sarah, when you come up here.
So thanks for taking the question. Chris Hemmelgarn from Barclays. In terms of the answer, I guess I'll narrow it down. It's probably not for Chris. You talk you've laid out a really interesting case for why you can grow.
But when I look at the hard disk business specifically, share gains were a big component of that staying flat. And just realistically, this is a market that's been pretty well established. You guys used to talk about share gains back and forth all the time and it never really moved all that much. Could you just talk about what gives you the confidence that this time is different?
I'll give a quick one and I'll let you guys if you want to add to it. I'd characterize that to be very clear that we think of this as very modest share gains, okay? This is and again, this is not a management team that we don't come out. We have not beat our chest today. I think we've been very thoughtful about our comments and how we think about things.
And you're right, that's a market that has 2 established very, very good players. But the proof points that we would point to were even in our most recent quarter in our guide where we actually buck seasonality because we saw some nice growth, right, on new platforms and new programs at customers in those types of drives. So again, we're not out here to say these are going to be massive shifts. But when you think about a market that's declining a little bit each year and if you can move the needle up a little bit each year, and for us, that segment of the market commands better gross margins. It's a higher premium, tougher segment.
It plays to our strengths. And then you get the preamp thing going. That's how we get to our model. We don't we recognize it's 2 very good players and customers want choice and we're being thoughtful about it. Do you guys want to add anything?
No, that's perfect. Okay.
Chris Rollins, Susquehanna. Congrats on the Analyst Day. I'm still trying to figure out what company this Analyst Day is representing. It says Marvell behind you guys, so I guess I'm going to go with that. But congrats on Marvell 2.0 so far.
I want to talk about SSD controllers. I remember back in the day when it was kind of a 2 horse race, it was you guys and Sand Force. Sand Force was sold all around and eventually went to Seagate where they kind of deemphasized that market. And maybe some new players stepped into that void. Marvell didn't really capitalize on that opportunity.
Maybe you could talk about what happened there, why that didn't happen and why it's kind of reinvigorated for you guys now in those opportunities
there? Yes, go for it.
Okay. Well, none of us up here were actually here during the time of the Sand Force Marvell battle, but I do recall it and I'm aware of it from our internal reviews. And I think Marvell has had its own SSD challenges in the past. I think some of you recall that, especially exposure to 1 large PC OEM a few years ago where that business was really concentrated. But I think actually, quietly behind the scenes over the last couple of years especially, Marvell actually has been taking advantage of this opportunity.
If you see the momentum in our business, and a lot of you have been able to kind of back into what our growth rates look like based on the commentary we've given, this business has grown incredibly fast. And as Dan pointed out, it's not a one trick pony anymore, right? It's really a business that's highly diversified across the whole range from retail all the way up to the highest of high end end hyperscale data centers. So we actually think we've benefited from it. There's probably some other companies that benefited as well from that particular dynamic you mentioned about Sandforce.
But we like our prospects and how we're positioned. And we've got kind of great leading indicators in each of that segment of SSD now.
Harsh, we'll let you bring us home and then we'll break.
Thank you. Harsh Kumar, Stephens. A question for Matt and maybe Gene as well. I think you guys mentioned that you started the supply chain initiative about 9 months ago. Typically, it takes about 9 months to a year to get benefits.
I was surprised that you feel that you've already gotten a bunch of the benefits. How much do you feel you've got out of it so far? And what's in the margin? And what do you think is left? And then I've got one.
Yes. So when you think about our fiscal 2018 gross margin improvement, as I said, probably 60% of that improvement is from supply chain management. So the effort has been ongoing for the last 9 months. So over the fiscal 2018, you're absolutely right, it takes like 6 to 9 months for the effort to get the full benefit. So our the supply chain management, the margin improvement, that's why you are going to see in the second half of fiscal twenty eighteen, we're going to see the whole thing, right?
Right now, when you look at our guidance of 59
Okay. Okay. And then as a follow-up, I think your R and D today is running about 29%, 30%. I think you just had long term goals 23%, 22%, 24%. What are the obvious things?
Is it all leverage from revenue growth? Is that the assumption? Or are there obvious things you can take out? Yes. I'd just say, I think it's a combination of 2 things.
1 is, as you saw, we've done better than expected on OpEx through the restructuring. So we've pulled it in by a quarter. We've narrowed the range. So that's a positive, right, if you just think about directionally how things are going. And the second is, as you've seen in our growth plans today, we believe we can grow this company modestly, but with some modest revenue growth in the trajectory we're on with respect to how our OpEx is sort of rolling into our restructuring, we don't we believe we can get there, and our internal math works.
We gave a range, right, obviously. We're still focused on making sure we have an efficient company, that we're organized properly. I mean, all those things you shouldn't assume that we've just sort of stopped, just like on supply chain, just because we got some benefit we haven't stopped. This is a continuous improvement mentality in the company. Last point I'd add just back to your first question.
The one thing that surprised us but was a benefit was operations team has done a great job on the supply chain management, which says take time to take benefit. But you can imagine there was a lot of low hanging fruit given where we were at. And so some of the benefit we saw upfront was just literally getting in there and unpacking the costs and figuring out what we could do differently. And I think we executed pretty well on that. So I think we got kind of a twofold benefit.
1 was just attacking it, and the second was just getting some systemic fundamental improvements to it.
Okay. So we have lunch out there in the place where you had breakfast this morning. We'll all be available to meet with you guys and we can continue the conversations. So thank you.
Yes. I'm just around as long as you guys want. So anyway, great to see all of you. Thank you.
Thank you so much.