Good day, ladies and gentlemen, and welcome to the Q4 2015 Marvell Technology Group Ltd. Earnings Call. My name is Whitley, and I'll be your operator for today. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session.
As a reminder, this I will now turn the conference over to your host for today, Mr. Suki Nagesh, Vice President of Finance and Investor Relations. Please proceed.
Thank you, Whitley, and good afternoon, everyone. Welcome to Marvell Technology Group's 4th quarter fiscal year 2015 earnings call. With me on the call today are Sahar Sitarja, Marvell's Chairman and CEO Willy Dye, Marvell's President and Mike Rashkin, Marvell's CFO. They will all be available during the Q and A portion of the call today. If you have not obtained a copy of our current press release, it can be found at our company website under the Investor Relations section atmarvell.com.
We have also posted a slide deck summarizing our Q4 fiscal year 2015 results in the IR section of our website for investors. Additionally, this call is being recorded and will be available for replay from our website. Please be reminded that today's discussion will include forward looking statements that involve risks and uncertainties that could cause our results to differ materially from management's current expectations. The risks and uncertainties include our expectations about our overall business, our R and D investment, product and market strategy, statements about our design wins and market acceptance of our products statements about general trends in the end markets we serve including future growth opportunities statements about market share and statements regarding our financial outlook for the Q1 of fiscal 2016. To fully understand the risks and uncertainties that may cause results to differ from our expectations and outlook, please refer to today's earnings release, our quarterly report on Form 10 Q and subsequent SEC filings for a detailed description of our business and associated risks.
Please be reminded that all of our statements are made as of today and Marvell undertakes no obligation to revise or update publicly any forward looking statements. During our call today, we will make reference to certain non GAAP financial measures, which exclude the effect of stock based compensation, amortization of acquired intangible assets, acquisition related costs, restructuring costs, litigation settlement and certain one time expenses and benefits that are driven primarily by discrete events that management does not consider to be directly related to our core operating performance. Pursuant to Regulation G, we have provided reconciliations of the non GAAP financial measures to the most directly comparable GAAP measures in our Q2 earnings press release, which has been furnished to the SEC on Form 8 ks and is available on our website in the Investor Relations section. With that, I would now like to turn the call over to
Sahat. Thanks, Suki, and good afternoon, everyone. Today, we reported financial results for the Q4 and full year fiscal 2015. Our revenues in fiscal 2015 increased 9% over fiscal 2014 to over $3,700,000,000 a record high for the company. This 9% increase was better than many of our peers who reported growth in the low to mid single digit range.
This is the 2nd year in a row that we were able to outgrow our peers. For the year, our storage business increased 4%. Our mobile and wireless revenue grew 28% our networking business was up 1%. For the full year, we grew our non GAAP earnings per share faster than the revenue to $1.15 which represents a 13% increase from the prior year. In addition, in fiscal 2015, our operational execution improved across the board, resulting in strong free cash flow growth of over 80% compared to the prior year.
Our revenue for the Q4 was $857,000,000 a sequential decline of 8% and below our guidance range. But our non GAAP gross margin of 52% was better than expected and we effectively control our operating expenses resulting in 15% operating margin and a GAAP EPS of $0.25 which was a penny higher than our guidance. The lower revenue in Q4 was due to seasonality and a more aggressive pricing environment for our mobile solutions. LTE volumes, however, continued to ramp during the quarter and we expect this trend to continue throughout fiscal 2016. Storage revenues were in line with expectations while networking was slightly lower.
Despite the weaker revenue, we continue to focus on tight operational management and delivered margins and earnings that were better than expectations. We also bought back $20,000,000 worth of stock or 1,400,000 shares during the quarter and paid approximately $31,000,000 in dividends. Now I would like to provide a brief update on each of our end markets. First, for our mobile and wireless business. LTE units grew more than 50% in the quarter despite a sequential decline in overall mobile and wireless revenues.
The sequential decline was mainly due to seasonality in gaming, lower mobile sales due to 3 gs smartphone declines and lower ASP for our mobile solutions as the competitive environment in this market has intensified. However, we're still well positioned to capture a broad spectrum of models with our latest family of 64 bit LTE SoCs ranging from quad core to octacore solutions. We're very pleased to see one of our top tier customers launching global smartphone models based on our 64 bit LTE platform from which we expect strong growth this year. We're also making solid progress in our turnkey solution and remain on target for availability in late Q1. Additionally, our next generation LTE modem supports carrier aggregation, thus enabling us to address global operators deployment of LTE Advanced.
We expect this solution to go into production later this year. Moving to wireless connectivity, we announced the industry highest performance 4x4, 11ac Wave 2 products targeting enterprise access points and service provider markets. We already have leading market share in enterprise and carrier grade access points and our Wave 2 technology will further expand our leadership in this space. We expect to have Wave 2 products launched by our customers later this year. In addition, we also have new high volume design wins for retail access point based on our existing Wave 1 solutions.
We also continue to see adoption of our industry leading MIMO 2x2ac combo chips across multiple client applications. For example, in the Chromebook system ecosystem, we have new products from Tier 1 OEMs that launched with Marvell 2x2 AC combo chips over the past few months and we expect to see more models launched in the coming quarter. Gaming is another area with strong MIMO adoption for Marvell as both Sony and Microsoft continue to gain share in the console market. Other product areas where we are building a strong design pipeline for our 11ac products include tablets, set top boxes and audio video streaming products. For Q1, we expect our mobile and wireless end market to decline slightly on a sequential basis driven by weak seasonal patterns in connectivity, but partially offset by growth in mobile.
Moving next to IoT. We continue to experience strong demand for our highly integrated IoT wireless microcontroller solutions. Our customers are increasingly adopting our ZigBee, Wi Fi and Bluetooth microcontrollers for their IoT products. For example, we recently announced that Xiaomi has launched a line of smart home products based on our wireless microcontrollers with more customers gearing up to launch many exciting IoT products this year, including products that will leverage our support for Apple Home Q. Moving next to multimedia products, we continue to see strong volume shipments into Google Comcast.
In addition, we are among the early partners for Google Cast for audio, which allows users to stream audio from apps to Google Cast Baby speakers. We are also shipping our award winning Armada 1500 family of SoCs to service providers worldwide. Last month for example, one of leading service providers in France launched their set top box based on the Armada 1500 Pro system on the chips. Turning next to networking. We continue to gain traction with our recently introduced QuestFlow Advanced Algorithmic TCAM, which has an order of magnitude better performance to power ratio.
Not surprisingly, we have received very positive feedback from our customers with a number of design activities. In Q4, our networking revenues declined compared to the prior quarter, mainly due to weaker than expected carrier spending. However, during the quarter, we saw growth in our Ethernet switching product line and strength in our networking system on chip products for access points, consumer network attached storage and gateways. In addition, we continue to receive good design win of our 10 gs Base T 10 gig copper Ethernet PHY. In fact, we were recently awarded a major design win with a North American Tier 1 OEM for our 10 gigabytes Copify, which will enter high volume production next year.
For Q1, we are expecting our networking business to grow sequentially as stronger seasonality returns. Next, moving on to storage. Q4 performance was consistent with our expectations in a seasonally weaker quarter and declined 4% sequentially. In HDD, our revenue grew slightly, despite the sequential unit decline in the HDD industry. We believe that we are well positioned to continue to gain share and outgrow the market.
Next in SSDs. We continue our leadership and remain the top SSD controller vendor in the market. In fiscal 2015, our revenues grew 30% over fiscal 2014 marking a new record for our SSD business. In terms of products, we continue to gain traction with our SATA controllers as well as our PCIe controllers. In Q4 fiscal 2015, we also introduced the world's 1st DRAM less NVMe SSD Controllers for mass market mobile computing products that support the latest TLC and 3 d NAND, which have been very well received by our customers as well as many PC OEMs.
We expect significant revenue from this new class of controllers starting second half of this year. As a result, we believe our SSD business remains on track for further growth. For Q1, we expect our storage end market to decline sequentially on normal seasonality for both HDDs and SSDs. In summary, we had a strong fiscal 20 15 with revenue growth that outpaced many of our semiconductor peers, driven by steady growth in our core storage and networking businesses and strong increases in mobile and wireless and SSD sales. We grew our operating income by 16%, grew our EPS by 13%.
For this coming year, we also plan on continuing our operational discipline and expect to maintain roughly flat operating expenses. Despite the short term Q1 seasonal weakness, we continue to focus on execution in all end markets and we believe we are well positioned to grow again in fiscal 2016. We continue to gain traction in mobile at major customers on multiple platforms. Our connectivity business is also poised to grow strongly in fiscal 2016 with increased adoption of our Wi Fi solution in enterprise access points, service providers equipment, UltraBooks and LTE smartphones. In IoT, we are gaining significant traction with our integrated wireless microcontroller solutions with multiple customers.
Our storage business remains healthy driven by continued growth in both HDD and SSD. Finally, our networking business remain on track to grow as we broaden our footprint across enterprise data center and service provider customers. With that, I would like now to turn the call over to Mike to go over our Q4 and full year financial results and first quarter
outlook. Thank you, Sahad, and good afternoon, everyone. Moving to our financials. As Sahad mentioned, we turned in a strong performance in fiscal 2015 with steady growth from our core business and strong ramps in our newer products, which resulted in strong top line growth that outpaced many of our peers. For fiscal 2015, we reported total revenue of $3,700,000,000 an increase of 9% from fiscal 2014.
Our non GAAP gross margin was approximately 50% and our operating expenses were $1,300,000,000 roughly flat from the prior year as we kept a tight lid on spending throughout the year. This resulted in an operating margin of approximately 16%, an improvement of 100 basis points from fiscal 2014. Interest and other income totaled $23,000,000 and we had a tax credit for the year of $3,200,000 resulting in a non GAAP EPS of 1.15 dollars an increase of 13% from fiscal 2014. Our 4th quarter financial results were overall on target with our guidance. While revenues were below guidance, our gross margin and EPS were above the midpoint of guidance.
We reported revenues of $857,000,000 for the 4th quarter, which was a decline of 8% sequentially, driven mainly by seasonality and lower mobile sales. As Sahat said earlier, LTE volumes continued to increase and the decline of our 3 gs business will less of an effect on the overall mobile business starting in Q1. Although the pricing environment is getting more competitive, we are confident that we can win our fair share of 4 gs smartphone design wins and continue to see meaningful momentum throughout this year. Moving on to details on our various end markets. For the full fiscal year 2015, our mobile and wireless business increased 28% and represented 29% of overall sales, driven by the 1st year of LTE smartphone ramps in China and connectivity shipments into gaming consoles, access points, printers and the Chromecast.
Our mobile business grew over 35% fiscal 2015 compared to fiscal 2014. In Q4, our mobile and wireless business declined 19% sequentially and represented 24% of total revenues. In networking for fiscal 2015, our revenue grew 1% and represented 18% of total sales, which was consistent with the overall enterprise spending environment last year. In Q4, our networking revenues declined 3% sequentially and represented 19% of Q4 sales, consistent with a soft seasonal quarter. In storage, our fiscal 2015 revenue grew 4% and represented approximately 47% of total sales.
We saw growth in our HDD business another year of strong double digit growth in our SSD business. In Q4, storage sales declined 4% sequentially, roughly in line with our expectations and represented 51% of total Q4 sales. Moving next to margins and expenses. Our non GAAP gross margin for the Q4 was approximately 52%, which was above our guidance range and improved 80 basis points sequentially. Contributing to this increase in gross margin was a sell through of previously reserved inventory.
Non GAAP operating expenses came in at $315,000,000 better than the midpoint of our guidance range due to continuing operating discipline across all our businesses. This resulted in a non GAAP operating margin of 15% for the quarter, fifty basis points better than the midpoint of our guidance range. Net interest and other income was about $4,000,000 and we recognized a tax expense of $2,500,000 in the quarter. This resulted in non GAAP net income for the Q4 of $131,000,000 or $0.25 per diluted share. This was a penny ahead of our guidance.
The shares used to compute diluted non GAAP EPS during the Q4 were 533,000,000 and $55,000,000 and free cash flow for the 4th quarter was $135,000,000 or approximately 16% of revenue. Now summarizing Q4 results on a GAAP basis, we generated GAAP net income of $82,000,000 or $0.16 per diluted share. The difference between our GAAP and non GAAP results during the Q4 was mainly due to stock based compensation expense of 38,000,000 dollars $3,000,000 of restructuring expense, dollars 3,000,000 of legal indemnity guarantee costs and $4,000,000 expense related to amortization and write off of intangible assets. Now turning to the balance sheet. Cash, cash equivalents and short term investments as of the 4th quarter was approximately $2,500,000,000 an increase of approximately $130,000,000 from the previous quarter.
We also used $20,000,000 to buy back approximately 1,400,000 shares of stock during the quarter. We currently have about $443,000,000 remaining in our authorized repurchase program and we'll continue to be opportunistic in our buybacks. We also paid dividends of $31,000,000 in the quarter or approximately or equivalent to $0.06 per share. Net inventory at the end of the 4th quarter was approximately $308,000,000 a decrease of about $48,000,000 from the previous quarter as we continue to manage our inventory. Moving next to our outlook for the Q1 of fiscal 20 16, we currently project revenues to be in the range of $810,000,000 to $830,000,000 At the midpoint, this would equate to approximately a 4% sequential decline.
We expect our storage business to decline sequentially, our mobile and wireless business to decrease slightly and our networking business to experience modest growth. We currently project non GAAP gross margin of 50.5 percent plus or minus 100 basis points and currently anticipate non GAAP operating expenses to be approximately $320,000,000 plus or minus $10,000,000 We anticipate R and D expenses of approximately $265,000,000 and SG and A expenses of approximately $55,000,000 At the midpoint of our projected guidance, this should translate to a non GAAP operating margin of approximately 11.5 percent plus or minus 100 basis points. The combination of interest and other income should net out to approximately $2,000,000 and we expect tax expense to be approximately $2,000,000 We currently expect the diluted share count to be approximately 535,000,000 shares. In total, we currently project non GAAP EPS to be $0.18 per diluted share plus or minus a penny. On the balance sheet, we currently expect to generate slightly over $100,000,000 in free cash flow during the quarter.
We anticipate our cash balance to be about $2,600,000,000 excluding any M and A activity, share buyback or other one time items. We currently expect our GAAP EPS to be lower than our non GAAP EPS by about $0.09 per share. With that, I'd like to turn the call over to the operator to begin the Q and A portion of the call. Operator?
Your first question comes from the line of Craig Ellis with B. Riley. Please proceed.
Sahad, I just wanted to follow-up on the comments that you made around baseband pricing. Can you discuss in more detail where you're seeing LTE baseband pricing be more aggressive? Is it in octacore parts, quad core parts? And what's been the trend with pricing steadily down? Or have there been discontinuities?
Sui, do you want to cover this?
Sure. Yes. Well, it's a highly competitive market and LTE that's definitely taking off in a big way. The our volume went up, but overall revenue side you see it's pretty humble from that standpoint of view. Of course, our Okta core is gaining also momentum for design wins.
So we are very committed and we're very bullish about our continuation with supporting customers and gaining market share in that space.
And as
a follow-up to that question, Weili, can you just identify what the mix is between LTE and 3 gs baseband from a revenue standpoint? And as we look out through the year, how should we expect that to evolve as we go through calendar 2015?
Marvell's standpoint of view, of course, we are driving LTE to the masses.
Yes. So hey Craig, this is Sufi. We have we did see a big continuation of the 3 gs down ramp we talked about in the last quarter as well. And I think it shouldn't come as a surprise given our exposure to one of our big Asian OEMs there. We're probably towards the tail end of that I would guess.
Maybe throughout
by the
end of this quarter we should be predominantly done with the 3 gs business. And moving forward, it will be mostly LTE. Thank you.
Your next question comes from the line of Harlan Sur with JPMorgan. Please proceed.
Good afternoon. Thanks for taking my question. So on the mobile business, this is I think probably the 2nd quarter in a row that mobile is disappointed. And I think that in my estimates, I think your 3 gs business got cut in half again this quarter. And on the 4 gs front, while you're on the cusp of driving solid growth and still have a strong number 2 position relative to Qualcomm, obviously pricing continues to be aggressive and the R and D investments to drive an aggressive roadmap continue to be high.
There's been some speculation about the potential for strategic alternatives for the mobile business. Fahad, at what point do you start to look seriously at strategic alternatives for mobile? My estimate is that if you strip out the mobile business, you end up with a business that is driving kind of lows, mid single digits top line growth, but driving 20% plus operating and free cash flow margin. So your thoughts on the level of commitment on the mobile business and your willingness to explore potential strategic alternatives?
Okay. All right. So that's a lot of questions. There's a lot of okay. Let me answer 1 by 1.
In terms of the reason why you are seeing our competitors reacting to our entry into the LTE business aggressively. This actually gives us a good feeling, a good sign that our technology is indeed is world class. Okay, we are only actually have we are in terms of volume we are small player compared to the 800 pound gorilla. But the 100 pound gorilla realized that we as our solution is a real threat to their existence. So they are reacting to scare us from getting into this business.
So we are not going to back off of this business. We are continuing to build even more advanced solution. Now of course, as you okay, of course, we have to make sure that we manage our expenses accordingly. Now with respect to the second questions on strategic opportunities, yes there's a lot of people asking this question. Our answers will be very, very, very clear.
We as management of the company will consider anything that makes sense to the shareholder. Anything that will bring the share value of a shareholder up is our responsibility to entertain and look at all the different possibilities. But for sure, okay, we are not backing off from this business. And if you look at some of the technology we are building, like tomorrow I'm going to give a presentation, the plenary talk at the ISFCC. You probably you will if you have time to attend the ISSEC plenary at 10 o'clock, you will hear some of the new directions that I'm driving to drive, okay, the technology development to completely differentiate us from the rest of the world.
So sorry, not tomorrow, I made a mistake on Monday, okay? Monday at 10 o'clock in San Francisco. So you will see that we are actually okay, we are going to become a real threat to many of the players in this market. Arlen, did I ask you
a question? Do you have a follow-up?
Yes. My follow-up to that is, I don't disagree with all of the points that you've made as it relates to you guys being a strong number 2. I do think that you guys have a very strong and competitive 4 gs chip gs chipset roadmap. But I think the other concern in addition to just driving shipment growth and revenue growth is the confidence level in driving sustainable and potentially profitable growth within the mobile business going forward. And so assuming that you can grow your 4 gs mobile business in terms of units and revenues, what are you doing to improve the margin profile in this very aggressive pricing environment?
Yes. We talked about this actually even last quarter. The one of the missing items from our roadmap is not we don't have strong 4 gs roadmap. To the contrary, we have very strong 4 gs roadmap. We have the our LTE event is already in the customer development stages, okay, we have very advanced carrier aggregation technology, including aggregation from TDD with FDD LTE.
So we actually at the bleeding edge of the carrier aggregation roadmap. What's missing, okay, like we talked about it last quarter was the turnkey solution. The turnkey solution actually will give us more much higher margin because we are dealing with many, many customers. They will be with the Telecommunication, we can deal with many customers basically just push button and build more handsets. And those customer base will give us higher margins.
So this is the area that we say we're committed to deliver and by the end of Q1, we will have the more complete Q1 to be starting to deliver to customer for hopefully production, okay, the next quarter also.
Thanks, Tahad.
Thank you, Arun.
Your next question comes from the line of Doug Freeman with RBC. Please proceed.
Hi. Thanks for taking my question. When we look at the mobile and wireless group, you do have the WiFi business in there, but yet it's very hard for us to decipher between the WiFi business and your baseband business. Is there any color that you can offer to help us understand what the different trends that you're seeing in that business are?
I'll cover a little bit, yes, and then maybe somebody else can chip in here. So on the handset, it's clear that 100% attachment rates of our Wi Fi, But our Wi Fi business is not just for the handsets, okay. In fact, we started the business in other areas. So we're strong in Fi in the enterprise access points and basic carrier grade access points. Those are the very, very high end 4x4 WiFi chips targeted for multi bands, again multi users access points with beamforming circuit to address the coverage inside an office buildings.
Which tends to have complicated multi path impairment. So those one area of the business where we are strong at. The other area that we are strong at the gaming, like those devices that goes into the Playstations and Microsoft gaming devices. And also if you look at the Chromecast downhole devices, these are like the emerging form factors, they will allow any TVs including TVs that have been shipped for the last 10 years to be turning into smart TV. And those solutions comes with also a 100% attachment of our Wi Fi.
And the other part is the Chromebooks. The Chromebooks, okay, we are strong in the Chromebooks because we are de facto standards for the 2 by 2 Wi Fi in the Chromebook ecosystem. So as the Chromebook market takes off and we expect that with more and more acceptance over the years, We will have more and more volumes from that market. Is there anything else you want to add?
Yes. Of course, the IoT Marvell is a leader moving forward to drive the overall IoT, which is a significant growth. So that Wi Fi technology is very critical.
I guess if I was to ask the question maybe a little bit more clearly, what I was looking for is the percentage of mobile and wireless that is related to non cellular.
We don't divide that. We don't. We haven't
so Doug, as you know, we haven't provided that breakdown mainly for because we do have a lot of business that are tied to mobile. We have a lot of business that we can't really distinguish. So we shouldn't be distinguishing that. So we'll shy away from that.
All right. I guess if I could try another one then. If we look at your business where you've guided revenues now, we're going to be down 14% year on year, but yet you're saying that you feel confident you can get back to revenue or have revenue growth in 2016. That calls for some very above seasonal sequential for the balance of the year, most notably, especially in the wireless business, should you want the wireless business, mobile and wireless to grow, I've got over 20% growth per quarter. Is that something that you think is a reasonable expectation for the market to have at this point?
We've seen that before. So number 1. Number 2 is, we this time around, okay, we also have 2 chips in a given time coming into the LTE space, basic almost at the same time back to back. And number 3, we have LTE events that going into introducing LTE events. So, over the second half of the year, we believe that our LTE business is going to be improved quite significantly.
All right, great. Thank you. I'll leave it there.
Your next question comes from the line of Quinn Bolton with Needham. Please proceed.
Hi, I just wanted to follow-up on the pricing question for RealTE. Obviously, it seems to be a hot button here. But you sort of talked about pricing in the quad core solutions. Wondering if you can give us some sense, is that both across 32 bit and 64 bit? Or are you seeing better pricing even at quad core for your newer 64 bit solutions?
Just really trying to figure out if there's any place sort of to hide in the LTE market where you might have pockets of better pricing? And then I've got a follow-up question.
Yes. We're moving all our solutions away from 32 bits. So in LTE, every single chips that we're building right now, the one we're introducing okay, we had introduced the last quarter, 2 quarters, all 64 bits. Our 1st generation LTEs 32 bps, but we are moving away from 32 bps. So in terms of what
was the second the other question? So his question was more pricing within the LTE difference.
Yes, yes. We don't have 32 we are not we are moving away from 32 bps, so we cannot even talk about the price differentiation. So we want to drive the as the new player into the market, okay, we want to drive the change. So we don't want to play in the games where the existing player playing the 32 bit like the strong 32 bit. Let them if they want to stay there, that's fine.
But we want to we want the market to move sooner to the next generation solution.
All right. If I hear you then it sounds like the pricing even for 64 bit quad core has become very aggressive?
Yes. Right. Yes.
Okay. Thanks for that clarification. And then the second question I had just on the storage business, if I heard you right, I think you said that storage was down about 4% sequentially, but that HDDs HDDs were actually up. And I just want to make sure that that was the case, because if that's the case, it sounds like the SSD business may have seen a fairly significant decline considering it's a much smaller business than HDDs. If that's all correct, could you say what's going on in the SSD that might have resulted in that sequential decline in the January quarter?
Thank you.
So Quinn, yes, you're right. Our SSD business was seasonally weak in Q4. Nothing more than that in our HDD business. Obviously, we are continuing to see some share gains. I think we've talked about this in the past few quarters that's continued.
And we did see some seasonal declines in our SSD business
for the quarter. Okay. Thank you.
Your next question comes from the line of Hans Mosman with Raymond James. Please proceed.
Thank you. Question on the TCAM business or QuestFlow. How is the design activity there? And what kind of market share can you get over, say the next 18 months?
Yes, the quite slow, the feedbacks you are getting from any customers, basic any customers they are looking into these devices, they all were blown away with this capability. So the first reaction obviously is like is this real and then they start looking at the data and then they realize that it's real. So that's the reason why we say that not surprisingly, okay, we're getting every single month we are getting better, better traction. We okay, if you as you're asking for the next 18 months, okay, you have the actually this is the right question because in the enterprise application, this is the design cycle, it's long cycle. The good thing is we are entering this market with a new completely new differentiating technology.
So we believe that in the next year to 18 months, we will sometimes the next 12 months or 18 months, we will start seeing these products ramping into production with design wins, activities, design cycles in the next 12 months for new products to be released. Again, as you correctly questioned 18 months from now. By that time, we should be going production.
Yes, but my question is market share. Is there some kind of an expectation or a target to get the proper scale?
Yes. We believe okay, this is almost like a 0 one game, okay. So you can what is it? 0 sum game. 0 sum game.
So either we win all or nothing. So when the these are the best targeted for the big data carrier grade system. In the carrier grade of big systems, the requirement is you have needed to have bigger and bigger table. But one would be so they have 2 choices. They can buy 2 or 3 chips from our competitors with each chip be spending 100 watts or more or and by the way this has to be air conditioned in the remote office in the central offices.
So all they can use our technology and have much, much bigger capacity in a single device at much lower power. So we believe that we can get basically a major, if not a majority of the new designs that's coming in the next 18 months or so.
Okay, very helpful. Thanks.
Your next question comes from the line of Sanjay Chorusia with Nomura. Please proceed.
Hi, Sahab. One question on LTE. Could you give us any color on the 50%? You said quarter on quarter increase in the LTE shipment volume. Was it driven by your largest customer?
Or was it equally driven by China OEMs? Because it seems you are saying that the China momentum hasn't started yet, because your turnkey solution will be available only in the end of Q1?
You want to cover that?
Yes. This is across the board for all the customers.
Could you give us any color whether the biggest customer was driving is driving more of this ramp versus other OEMs?
I think the answer was okay that even though we don't have turnkey, we still have customers even in China they are not turnkey customers, but they are working okay. They have people their own engineers working on the handset. It was across
the board, Sanjay. We wouldn't point to anyone any given area any given geography or customer.
Okay. And as a follow-up, Shahad, if you look at LTE competition coming down, MediaTek said on their call they're increasing their OpEx primarily in the LTE R and D area by 20% in this year. And as you go try to go outside of China, try add these complex new LTE Advanced features in your roadmap, how confident are you that you could deliver all that in your current OpEx run rate?
Yes. We already sampled our LTFM. So we are right now in the certification process. So in terms most of the if you look at the modem technology, we have more than enough investment. We have the investment that people are talking about, investors worrying about this, it's not actually in the modem side, if we need to build the 3rd key, we need to get the software, they have nothing to do with the modem, the making the applications to be plug and play versus just building the modem.
If it's only the modem, okay, we are well ahead we're way ahead of MediaTek. We are the only one that have other than Qualcomm having the hardware modem today in the market. Everybody else that they're still using the software modem. So since you're talking about LTE events, in order for MediaTek to deliver LTE events, okay, I mean, or LTE, I don't think they're talking about LTE events. But if you're talking about if assuming they're going to talk about increasing investment, I will not be surprised they have to increase the investment because they have to build completely new team, new directions from the software defined modem to hardware defined modem.
So clearly, clearly, okay, they have to increase the expenses, okay, if they want stay in this business.
Do you have a follow-up Sanjay?
I will take that opportunity though. That was a follow-up. One more if I can squeeze in, Suki. This is Sehas again. This is a big year for LTE in China, volume potentially tripling this year.
And arguably this could be the biggest growth year in China in the next coming years. What are the metrics you have set for yourself in terms of shipment because you don't control the ASP environment, so we'll not talk about revenue growth. But in terms of shipment growth, in terms of your share in overall shipment that will give you confidence and investors confidence that this is indeed a sustainable business?
Yes. I will say that here like getting the 3rd key to be out, that they go production sometimes in the end of Q2 will give us okay, we should give investors huge confidence that our volumes begin to get our fair share of the LTE. So this is kind of after everybody in the world moving to LTE, but even the people in the developing world, if you're talking about LTE. So we're not talking just about China growth opportunity. The global opportunity of the LTE is also just a big.
Thank you so much.
Your next question comes from the line of Ian Ng with MKM Partners. Please proceed.
Yes. Thank you. So more on wireless in China. What's your exposure to the Should we think of it as a similar exposure as TD? Should we think of it as similar exposure as TD China Mobile?
Thanks.
Ova, do you want to talk about?
Well, today we LTE solutions, so we are already addressing China Mobile and as well as China Unicom. And so we're working with all the top tier OEMs in China as well as global OEMs. So we're very well positioned.
Okay. So FTE should be is FTE included in your estimates for this year then?
Our LTE is a 4 5 mode, yes, it's a global solution.
I think, Salveen, I want to clarify it. So if you look at all the even in China, every carriers, whether it's China Telecom or China Unicom, they all want to have the 5 node because they want to be able to a lot of handsets are built in multi SIM, dual SIM capability. So people customers wants to have a flexibility to have maybe one SIM, okay, from China Mobile, one SIM from China Unicom. So it is okay and then nobody wants to buy 2 different LTE handset for that purpose. So as a result, it's very what you're hearing is, okay, it's like almost everything has to be these 5 modes.
So we are delivering that. So it's to us, okay, it's no difference whether it's China Unicom or it's going to go to South America or to go to Europe. It's the same FDD, LPDD, all the same device.
Great. And my follow-up is in storage. Looks like there's the potential for MovCom to approve the Western Digital Hitachi combination. Should that happen? Is there any share gain opportunities?
It seems Hitachi is more of a LSIIvago customer?
Yes. We're working with we're already working with Hitachi. So we will continue to work to get to gain the share at Hitachi. So I don't think it has nothing to do with MARCOM. It's independent of that.
So that's been ongoing then.
Okay. Great. Thank you.
Your next question comes from the line of John Pitzer with Credit Suisse. Please proceed.
Yes. Good afternoon, guys. Thanks for letting me ask the question. I guess, my first question is, some of your peers will actually break out operating profit by division. Kind of curious if that's something you guys have contemplated doing to try to give us a better sense of the profitability within mobile and wireless?
And if it's not, can you help me better understand what longer term returns or margin targets you're looking for in mobile and wireless for that to be a business that's worth being in longer term?
Yes. Okay. We're not providing that kind of data. But what we can we already say even the last quarter when we were asked the significant question, we say you can make assumption there that our mobile business is not profitable yet. So, okay, we will be profitable, okay, as when the volume goes up.
And this is the reason why we are not, okay, we are not playing chicken, okay, with this business. In this business, it's a scale business and we have the technology to become big in this business. And if we if it means, okay, we're going to lose to not make money in the next in the beginning. It's so big. There's no Tesla can have to go into the automotive business.
They have to be willing to not to make money so that they can grow their business. So we're going to do the same thing.
That's helpful. And then maybe my follow-up on the storage market. You guys are sort of guiding for the current quarter for storage to be down along seasonal lines. And I'm just kind of curious your confidence level around that given that a lot of the PC data points seem to be weaker than seasonal. What confidence do you have around just a seasonal decline and not worse?
And if I could just tack on a quick one within storage, last week Seagate and Micron announced an agreement around SaaS SSD drives. Does that change at all the control landscape for SSDs? Thank you.
John, I think we looked at the Seagate and Micron announcement. It doesn't really change our view. If you think about it, we're working with both Seagate and Micron, right? And so they're both customers of ours. So, yes, it doesn't really impact our business.
In fact, I think we'll continue to work with both of them. Okay. I'll go ahead. Right. And the other question was about
Confidence around seasonality in the hard drive business overall.
Right, right. So I think we watch the data points similar to what you guys watch very carefully and what's happening in the PC market. I think we're closer to our hard drive customers as you can imagine. At this point at least, we feel relatively comfortable at what they've talked about for Q1.
Perfect. Thanks guys.
Your next question comes from the line of Daniel Merer, of Ladenburg. Please proceed. Yes.
Thanks a lot. So your networking business here on a year over year basis, if I recall, is up 1%. I mean, can you give us kind of some data points here, how you view the networking going into also this quarter? It going into also this quarter to lead us to that growing confidence? Thanks.
So if you look at the networking side, okay, one of the which I mentioned earlier just this 10 gig base T. This is an area there that potentially could be a good a very good growth opportunity for us. And the reason we can say this is because in the shootout, meaning like our customers will put our devices with our competitors. Our devices actually have the lowest power as well as the longest range. So we do feel comfortable there.
Okay, over the with this new okay, with the new our new the latest 10 gig copper 5, we will have be able to get good growth opportunities. The growth opportunity for the rest of the like the switch fabric, those are the ones that we mentioned earlier, we've been working on it. Our new devices will not be available for another few quarters. So this is one that's Elizabeth, the one that giving us a little bit little bit pain, okay, because this is an area that in the past we did not invest in. So but as we got to get more advanced solutions out, we will we believe that we're going to be a step ahead from the existing suppliers because of their choice of architecture, which is the old architecture.
So the growth, okay, the bigger growth opportunity will happen next year instead of this year for the rest of the market. But we think that this is we also have these controllers for mass storage. Those devices will continue to increase in volume.
Okay. So essentially you expect somewhat of a similar fiscal 2016 to fiscal 2015 in terms of the networking business in terms of growth rate?
Our expectation is right now at least for our networking business is growth that's better than last year for this year. We are planning for better growth this year.
Okay. And just the one follow-up on the wireless connectivity business. I mean you gave some data points on how you see the mobile business growing this year. On the wireless connectivity, is it what's really going to drive the growth this year, assuming that it's going to grow? Is it the access point business essentially?
The access point business will always we will continue to grow because these are long these are very long design cycles. We've been working on this for, I don't know, 5 years, 6 years, a long time. So the customer tends to use one solution, practically, as long as we continue to build the next generation, they will stick with us. So that growth will naturally be there as more and more people want to have wireless devices like mobile devices. So the access points will continue to grow.
The other areas for KV is this carrier, the carrier grade or service provider, sorry, the service provider wireless, okay, will continue to grow as more and more service providers become more comfortable with using WiFi for distributing videos to the TV, to the set top boxes. And then finally, as we're introducing more and more events these micro set top boxes that looks like a dongle into the consumers. These devices actually, okay, were primarily based, not primarily, today is only based on Wi Fi. So those kind of those devices, okay, so much more advanced. Pretty soon, we have 4 ks, 2 ks devices of the size of smaller than a credit card and okay, we'll be able to decode all these 4 ks movies, okay.
Well, the existing set of offices can handle it and they all again will be using Wi Fi technology. So we believe that those markets will have good opportunity for growth in the next this year and even okay moving forward.
Of course, the access point 2 by 2 for the retailer space as well, which is high volume as well.
Thanks.
Your next question comes from the line of Joe Moore with Morgan Stanley. Please proceed.
Great. Thank you. My question is on the China baseband market. Do you see in that market, is there a preference for sort of local content? And if you look at like the deal that Intel did with Spreadtrum, does that create advantage for them because they're viewed as being local content?
And is there I mean guys have obviously been there for a while and have some pretty deep partnerships. Can you just talk about that dynamic and what that how that helps or hurts you in the next couple of years?
Do you want to cover that? Sure. Yes.
I mean our mission and really focusing on providing the best mobile solution for our OEMs. Of course, our OEMs in the ecosystem whether or not it's China or localization or other regions, that's more the ecosystem play. But for our responsibility, we are delivering delivering the highest quality and the best and most competitive mobile solution, which we are doing very well and we continue to gain more design win more design wins and capture more market share. So that's our focus.
I think, okay, I want to add to the answer to do is that, yes, of course, China, we'll prefer to have local suppliers. But we are local suppliers. Our designs are done in China. We're not our design is not done in any other country. This modem technology we talked about is built in China.
So these all these SoCs are built in China. So in a sense, we are a local Chinese supplier in this business.
Okay. And the customers view it that way? I mean, obviously, that's been the history of the company, but is there a government policy that works against you?
Well, I think the best thing you look at based on the track record. I mean, as you can see over a year ago, we were the first one. 1st semiconductor LTE solutions coming from Marvell supporting the biggest operators in China to China Mobile by December of 20 13. So this is based on the track record. And then in terms of our advancement driving not only we're leading the LTE, we were the first one to empower this ecosystem and deliver the LTE solution for China specifically.
This of course is extra hard that we're very strong player for local and we're also global players.
Great. Thank you very much.
We will take one last question.
Your next question comes from the line of Kevin Cassidy with Stifel. Please proceed.
Thanks. Just a quick question and a clarification on seasonality for HDD and SSD. I guess the seasonal decline equal with those or is HDD lower or more of a decline than SSD? And just what are you seeing as adoption rate of SSDs on the client side?
So I think we're seeing similar seasonality for both Kevin. I think adoption rate for SSDs obviously is improving. You hear that from a lot of OEMs. Obviously, there's different share dynamics that probably end up playing throughout the year. It's probably too early for us to comment on that.
But at least for the near term, we see similar seasonality for
both. Yes. And then besides talking about that, I mean, one thing I think it's worth noting is that Marvell, our SSD technology is very advanced and very robust reliability, security, high performance, all these features and the quality of SSD solutions is absolutely world class. And when it comes to storage, I mean, reliability, security is a must. And then there are even though there are multiple players in the space, but if you look at who has the real deal solid solution is us as the number one player in the storage space.
Okay, great. Well, yes,
I just wanted to if they are both seasonally the same, it seemed like SSD adoption would be slowing. But you're saying it's not that just
We are consistent actually in the all the in many, many the last year, we even talk about hybrid. So we do believe that in the long run, the both the adoptions of SSD is not bad use for the HDD business. But what it does is going to do is it's going to create this opportunity to build hybrid devices by taking advantage of the instant on capability of SSDs. And this is why we're building this device that we just introduced last quarter, the NVMe DRAM less PCIe SSD controller, specifically targeting for entry level, but very high performance nonetheless, but with very low cost circuit SSDs solution for the lower capacity market. And then customers can supplement the capacity requirements by buying traditional HDD.
They will give them much higher capacity, so at oneten the cost. So maybe they spend so for the total cost of less than let's say 12%, 13% of the true SSD cost, much higher capacity. So this is the strategy that we've been using also to expand the market opportunity
Okay. Thank you.
That concludes our Q and A. I'll now turn the call back over to management for closing remarks.
Thank you. I would like to thank everyone for their time today and their continued interest in Marvell. We look forward to speaking with you in the coming months. Thank you and goodbye.
Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.