Good day, ladies and gentlemen, welcome to the Q4 2015 Marvell Technology Group Ltd. earnings conference call. My name is Whitley, and I'll be your operator for today. At this time, all participants are in listen only mode. Later we will conduct a question and answer session. If at any time you require operator assistance, please press star followed by zero and we will be happy to assist you. As a reminder, this call is being recorded for replay purposes. I will now turn the conference over to your host for today, Mr. Sukhi Nagesh, Vice President of Finance and Investor Relations. Please proceed.
Thank you, Whitley. Good afternoon, everyone. Welcome to Marvell Technology Group's fourth quarter fiscal year 2015 earnings call. With me on the call today are Sehat Sutardja, Marvell's Chairman and CEO, Weili Dai, Marvell's President, and Mike Rashkin, Marvell's CFO. We will all be available during the Q&A portion of the call today. If you have not obtained a copy of our current press release, it can be found at our company website under the investor relations section at marvell.com. We have also posted a slide deck summarizing our fourth quarter and fiscal year 2015 results in the IR section of our website for investors. 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&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, statements regarding our financial outlook for the first quarter 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, 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, 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 settlements, 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 second quarter earnings press release, which has been furnished to the SEC on Form 8-K and is available on our website in the investor relations section. I would now like to turn the call over to Sehat.
Thanks, Sukhi, and good afternoon, everyone. Today, we reported financial results for the fourth quarter and full year fiscal 2015. Our revenues in fiscal 2015 increased 9% over fiscal 2014 to over $3.7 billion, 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 second 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%, and our networking business was up 1%. For the full year, we grew our non-GAAP EPS 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 fourth quarter was $857 million, a sequential decline of 8% and below our guidance range. Our non-GAAP gross margin of 52% was better than expected, and we effectively controlled 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 continued to focus on tight operational management and delivered margins and earnings that were better than expectations. We also bought back $20 million worth of stock or 1.4 million shares during the quarter and paid approximately $31 million in dividends. 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 3G 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 octa core solutions.
We are very pleased to see 1 of our top tier customers launching global smartphone models based on our 64-bit LTE platforms, from which we expect strong growth this year. We are 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 four by four 11AC Wave 2 product targeting enterprise access point and service provider markets. We already have leading market share in enterprise and carrier-grade access points, and our Wave 2 technology will further extend 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 2x2 AC combo chips across multiple client applications. For example, in the Chromebook 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's HomeKit. Moving next to multimedia products. We continue to see strong volume shipments into Google Chromecast. In addition, we are among the early partners for Google Cast for audio, which allows users to stream audio from apps to Google Cast-ready 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-Chip. Turning next to networking. We continue to gain traction with our recently introduced Questflo 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 fractions of our 10GBASE-T 10G copper PHY. In fact, we were recently awarded a major design win with a North American tier 1 OEM for our 10G copper PHY, 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 on and outgrow the market. Next, in SSD. 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 first DRAM-less NVMe SSD controllers for mass market mobile computing products that support the latest TLC and 3D 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 and market to decline sequentially on normal seasonality for both HDDs and SSDs.
In summary, we had a strong fiscal 2015 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 for 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 remains 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 fourth quarter and full year financial results and first quarter outlook.
Thank you, Sehat, and good afternoon, everyone. Moving to our financials, as Sehat 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 $3.7 billion, an increase of 9% from fiscal 2014. Our non-GAAP gross margin was approximately 50%, and our operating expenses were $1.3 billion, 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 million, and we had a tax credit for the year of $3.2 million, resulting in a non-GAAP EPS of $1.15, an increase of 13% from fiscal 2014.
Our fourth 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 million for the fourth quarter, which was a decline of 8% sequentially, driven mainly by seasonality and lower mobile sales. As Sehat said earlier, LTE volumes continued to increase, and the decline of our 3G business will have 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 4G 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 first 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% in 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 the total sales.
We saw growth in our HDD business and 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 fourth quarter was approximately 52%, which was above our guidance range and improved 80 basis points sequentially. Contributing to this increase in gross margin was the sell-through of previously reserved inventory. Non-GAAP operating expenses came in at $315 million, 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, 50 basis points better than the midpoint of our guidance range. Net interest and other income was about $4 million, and we recognized a tax expense of $2.5 million in the quarter.
This resulted in non-GAAP net income for the fourth quarter of $131 million 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 fourth quarter were 533 million. Cash flow from operations for the fourth quarter was $155 million, and free cash flow for the fourth quarter was $135 million, or approximately 16% of revenue. Now summarizing Q4 results on a GAAP basis, we generated GAAP net income of $82 million or $0.16 per diluted share. The difference between our GAAP and non-GAAP results during the fourth quarter was mainly due to stock-based compensation expense of $38 million, $3 million of restructuring expense, $3 million of legal indemnity guarantee costs, and $4 million expense related to amortization and write-off of intangible assets. Now turning to the balance sheet.
Cash, cash equivalents, and short-term investments as of the fourth quarter was approximately $2.5 billion, an increase of approximately $130 million from the previous quarter. We also used $20 million to buy back approximately 1.4 million shares of stock during the quarter. We currently have about $443 million remaining in our authorized repurchase program and will continue to be opportunistic in our buybacks. We also paid dividends of $31 million in the quarter or equivalent to $0.06 per share. Net inventory at the end of the fourth quarter was approximately $308 million, a decrease of about $48 million from the previous quarter as we continued to manage our inventory. Moving next to our outlook for the first quarter of fiscal 2016, we currently project revenues to be in the range of $810 million-$830 million. 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% plus or minus 100 basis points and currently anticipate non-GAAP operating expenses to be approximately $320 million plus or minus $10 million. We anticipate R&D expenses of approximately $265 million and SG&A expenses of approximately $55 million. At the midpoint of our projected guidance, this should translate to a non-GAAP operating margin of approximately 11.5% plus or minus 100 basis points. The combination of interest and other income should net out to approximately $2 million, and we expect tax expense to be approximately $2 million. We currently expect the diluted share count to be approximately 535 million shares. In total, we currently project non-GAAP EPS to be $0.18 per diluted share, plus or minus $0.01.
On the balance sheet, we currently expect to generate slightly over $100 million in free cash flow during the quarter. We anticipate our cash balance to be about $2.6 billion, excluding any M&A activity, share buyback, or other one-time items. We currently expect our GAAP EPS to be lower than our non-GAAP EPS by about $0.09 per share. With that, I'd like to turn the call over to the operator to begin the Q&A portion of the call. Operator?
Ladies and gentlemen, if you'd like to ask a question, that's star followed by one. Your first question comes from the line of Craig Ellis with B. Riley. Please proceed.
Thank you for taking the question. Sehat, 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 octa-core parts, quad-core parts, what's been the trend with pricing, steadily down, or have there been discontinuities?
Wei, do you want to go for this?
Sure, yes. It's a highly competitive market, LTE is definitely taking off in a big way. The quad-core pricing is actually moving down quite significantly. As you can see, the past quarter, our volume went up, overall revenue side, you see it's pretty humble from that standpoint of view. Of course, our octa-core is gaining also momentum for design wins. We are very committed, and we're very bullish about our continuation with supporting customers and gaining market share in that space.
As a follow-up to that question, Wei, can you just identify what the mix is between LTE and 3G baseband from a revenue standpoint? As we look out through the year, how should we expect that to evolve as we go through calendar 2015?
From Marvell's standpoint of view, of course, we are driving LTE to the masses.
Yeah. Hey, Craig, it's Sukhi. We did see a big continuation of the 3G 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 by the end of this quarter, we should be predominantly done with the 3G business, and moving forward it will be mostly LTE.
Thank you.
Your next question comes from the line of Harlan Sur with J.P. Morgan. Please proceed.
Good afternoon. Thanks for taking my question. On the mobile business, this is, I think, probably the second quarter in a row that mobile has disappointed, and I think that in my estimates, I think your 3G business got cut in half again this quarter. On the 4G 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&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. Sehat, 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 low, mid-single digits top-line growth, but driving 20%+ operating and free cash flow margins. Your thoughts on the level of commitment on the mobile business and your willingness to explore potential strategic alternatives.
Okay. All right. That's a lot of questions there. Let me answer it one by one. 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 world-class. In terms of volume, we are a small player compared to the 800-pound gorilla. The 800-pound gorilla realized that our solution is a real threat to their existence. They are reacting to scare us from getting into this business. We are not going to back off from this business. We continue to build even more advanced solutions. Of course, we have to make sure that we manage our expenses accordingly. With respect to the second question on strategic opportunities, yes, there's a lot of people asking these questions.
Our answers will be 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, it's our responsibility to entertain and look at all the different possibilities. For sure, we are not backing off from this business. 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 ISSCC. If you have the time to attend the ISSCC plenary at 10:00 A.M., you will hear some of the new directions that I'm driving to drive the technology development to completely differentiate us from the rest of the world. Oh, sorry, not tomorrow. I made a mistake. On Monday. Okay? Monday at 10:00 A.M. in San Francisco.
You will see that we are going to become a real threat to many of the players in this market.
Harlan, did that answer your question? Do you have a follow-up?
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 4G chipset roadmap. 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. Assuming that you can grow your 4G mobile business in terms of units and revenues, what are you doing to improve the margin profile in this very aggressive pricing environment?
We talked about this actually, even last quarter. One of the missing items from our roadmap is not we don't have a strong 4G roadmap. To the contrary, we have very strong 4G roadmap. Our LTE advance is already in the customer development stages. We have very advanced carrier aggregation technology, including aggregation from TDD with FDD LTEs. We're actually at the bleeding edge of the carrier aggregation roadmap. What's missing, like we talked about it last quarter, was the turnkey solution. The turnkey solution actually will give us much higher margin because we are dealing with many customers. With the turnkey solution, we can deal with many customers, basically just push button and build more handsets. Those customer base will give us higher margins.
This is the area that we say we're committed to deliver, and by the end of Q1, we will have the completed Q1 to be starting to deliver to customer for hopefully production the next quarter also.
Thanks, Sehat.
Thank you, Harlan.
Your next question comes from the line of Doug Freedman with RBC. Please proceed.
Hi, thanks for taking my question. When we look at the mobile and wireless group, you do have the Wi-Fi business in there, but yet it's very hard for us to decipher between the Wi-Fi 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, yeah, and then maybe somebody else can chip in here. On the handset, it's clear that 100% attachment rates of our Wi-Fi. Our Wi-Fi business is not just for the handsets. In fact, we started the business in other areas. We're strong in Wi-Fi in the enterprise access points and basic carrier-grade access points. Those are the very high-end four by four Wi-Fi chips targeted for multi-bands, multi-users access points with beamforming, to address the coverage inside an office buildings, which tends to be have complicated multi-path impairment. Those one area of the business where we are strong at. The other areas we are strong at are the gaming, those devices goes into the PlayStation and Microsoft gaming devices.
Also, if you look at the Chromecast dongle devices, these are the emerging form factors that will allow any TVs, including TVs that have been shipped for the last 10 years, to be turned into smart TV. Those solutions comes with also 100% attachment of our Wi-Fi. The other part is the Chromebooks. Okay, the Chromebooks, we are strong in the Chromebooks because we are the de facto standards for the two-by-two Wi-Fis in the Chromebook ecosystem. As the Chromebooks market takes off, and we expect that with the more acceptance over the years, we will have more and more volumes from that market. Is there anything else you want to add?
Sure, yeah. Of course, the IoT, Marvell is a leader moving forward to drive the overall IoT, which is a significant growth. 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 % of mobile and wireless that is related to non-cellular.
We don't divide that. We don't. Yeah.
As you know, we haven't provided that breakdown mainly 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. We shouldn't be distinguishing that. 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 over 14% year-on-year, 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 sequentials 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, number one. Number two is, this time around, we also have two chips in a given time coming into the LTE space, basically almost at the same time, back to back. Number three, we have LTE Advanced, introducing LTE Advanced. Toward 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.
Just wanted to follow up on the pricing question from LTE. Obviously, it seems to be a hot button here, 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. I've got a follow-up question.
We're moving all our solutions away from 32-bit. In LTE, every single chip that we're building right now, the one we introduced the last quarter, two quarters, are all 64-bit. Our first generation LTE were 32-bit, we are moving away from 32-bit. What was the other question?
His question was more pricing within the LTE difference.
We are moving away from 32-bit, we cannot even talk about the price differentiation. As the new player into the market, we want to drive the change. We don't want to play in the games where the existing player playing the 32-bit, like the strong 32-bit. If they want to stay there, that's fine, we want the market to move sooner to the next generation solution.
If I hear you it sounds like the pricing, even for 64-bit quad-core has become very aggressive.
Yes, that's true.
Right. Yes.
Yeah. Okay. Thanks for that clarification. 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 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.
Quinn, yeah, 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 continues. 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 Mosesmann with Raymond James. Please proceed.
Thank you. Question on the TCAM business or Questflo. How's the design activity there, and what kind of market share can you get over, say, the next 18 months?
Yeah. The Questflo, the feedback we're getting from basically any customers, they're looking into these devices. They all were blown away with this capability. The first reaction obviously is, "Is this real?" Okay. They start looking at the data, and then they realize that it's real. That's the reason why we say that not surprisingly, every single month, we are getting better traction. You're asking for the next 18 months. Okay. 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 completely new differentiating technology.
We believe that in the next year to 18 months, sometimes the next 12 months to 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.
Yeah. My question is market share. Is there some kind of an expectation or a target to get the proper scale?
Oh. Yeah. We believe, this is almost like a zero-sum game. Okay, what is it?
Zero-sum game.
Zero-sum game. Either we win all or nothing. These are the best targeted for the big data carrier-grade system. In the carrier-grade big systems, the requirement is you need to have bigger and bigger tables. They have two choices. They can buy two or three chips from our competitors, with each chip dissipating 100 watts or more. By the way, this has to be air-conditioned in the remote office, in the central offices. They can use our technology and have a much, much bigger capacity in a single device at much lower power. We believe that, okay, 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 Jethia with Nomura. Please proceed.
Hi, Sehat. 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? 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 is driving more of this ramp versus other OEMs?
No.
I think the answer was that even though we don't have turnkey, we still have customers even in China. They are not turnkey customers, but they have people there, their own engineers working on the handsets.
It was across the board, Sanjay. We wouldn't point to any given area, any given geography or customer.
Okay. As a follow-up, Sehat, if you look at LTE competition coming down, MediaTek said on their call they're increasing their OpEx primarily in the LTE R&D area by 20% in this year. As you try to go outside of China, try to 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 LTE Advanced. We are right now in the certification process. If you look at the modem technology, we have more than enough investment. The investment that people are talking about, investors are worrying about, is not actually in the modem side. It's we need to build the turnkey, we need to build the software. That has 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 than MediaTek. We're the only one that have, other than Qualcomm, having the hardware modem today in the market. Everybody else, okay, still using the software modem.
Since you're talking about LTE Advanced, in order for MediaTek to deliver LTE Advanced, I mean, or LTE, or I don't think they're talking about LTE Advanced, but assuming they're going to talk about increasing investment, I will not be surprised if 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. Clearly, they have to increase the expenses if they want to stay in this business.
You have a follow-up, Sanjay?
I will take that opportunity, though, that was a follow-up. One more question if I can squeeze in, Sukhi. This is Sehat again. This is a big year for LTE in China, volume potentially tripling this year. 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.
I will say that getting the turnkey to be out, co-production sometimes in the end of Q2 should give investor huge confidence that our volumes, we're going to get our fair share of the LTE. After all, everybody in the world moving to LTE, okay? Even the people in the developing world are talking about LTE. We're not talking just about China growth opportunity here. The global opportunity of the LTE is also just as big.
Thank you so much.
Your next question comes from the line of Ian Ing with MKM Partners. Please proceed.
Yes, thank you. More on wireless in China, what's your exposure to the FDD version of LTE? We're waiting for the commercial licenses for China Unicom and China Telecom. Should we think of it as a similar exposure as TD China Mobile? Thanks.
Weili wants to comment.
Today, LTE solutions, we are already addressing China Mobile and as well as China Unicom. We're working with all the top tier OEMs in China as well as global OEMs. We're very well-positioned.
Is FDD included in your estimates for this year then?
Our LTE support 5 modes. It's a global solution.
I think I want to clarify. If you look at all the LTE, even in China, every carrier, whether it's China Telecom or China Unicom, they all want to have the 5 modes because they want to be able to. A lot of handsets are built in dual SIM capability. People, customers want to have the flexibility to have maybe one SIM from China Mobile, one SIM from China Unicom. Nobody wants to buy two different LTE handsets for that purpose. As a result, what you're hearing is, almost everything has to be this 5 mode. We are delivering that. To us, 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, TDD, all the same device.
Great. My follow-up is in storage. Looks like there's the potential for MOFCOM to approve the Western Digital-Hitachi combination. Should that happen, is there any share gain opportunities? It seems Hitachi is more of a LSI/Avago customer.
Yeah, we're already working with Hitachi, so we will continue to work to gain the share at Hitachi. I don't think it has something to do with MOFCOM. It's independent of that.
That's been ongoing then. Okay, great. Thank you.
Yes.
Your next question comes from the line of John Pitzer with Credit Suisse. Please proceed.
Yeah, good afternoon, guys. Thanks for letting me ask the question. I guess, Sehat, 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. 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?
Yeah. Okay. We're not providing that kind of data. What we can already say, even the last quarter when we were asked the same question, we say, you can make assumption there that our mobile business is not profitable yet. Okay, we will be profitable when the volume goes up. This is the reason why we are not playing chicken with this business. This business is a scale business. We have the technology to become big in this business. If it means we're going to not make money in the beginning, it's so be it. Tesla has to go into the automotive business. They have to be willing to not to make money so that they can grow their business. We're going to do the same thing.
That's helpful. Maybe I might follow up on the storage market. You guys are sort of guiding, for the current quarter for storage to be down along seasonal lines, 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? If I could just tack on a quick one within storage. Last week, Seagate and Micron announced an agreement around SAS SSD drives. Does that change at all the control of the landscape for SSDs? Thank you.
I'm not familiar with.
John, I think we looked at the Seagate and Micron announcement. Doesn't really change our view. If you think about it, we're working with both Seagate and Micron, right? They're both customers of ours. Yeah, it doesn't really impact our business. In fact, I think we'll continue to work with both of them.
Okay. I forgot.
Right. The other question was about HD-
How is confidence around seasonality in the hard drive business overall.
Right. 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 Meyer with Rosenblatt. Please proceed.
Yeah, thanks a lot. Your networking business here, on a year-over-year basis, if I recall, it is up 1%. Can you give us some data points here how you view the networking business this year? You would expect this business to actually grow a little bit faster than the 1%, and what are the factors here, going into also this quarter, to lead us to that growing confidence? Thanks.
If you look at the networking side, which I mentioned earlier, just that this 10GBASE-T, this an area there that could potentially be a very good growth opportunity for us. 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. We do feel comfortable there. With our new, the latest 10G copper PHY, we will be able to have good growth opportunity. The growth opportunity for the rest of the switch fabric, those are the one that we mentioned earlier. We've been working on it. Our new devices will not be available for another few quarters.
This is the one that giving us a little bit pain, okay, because this is an area that in the past we did not invest in. As we got these more advanced solutions out, we believe that we're going to be a step ahead from the existing suppliers because of the choice of architecture, which is the older architecture. The bigger growth opportunity will happen next year instead of this year for the rest of the market. Within that business, we also have these controllers for mass storage. Those devices will continue to increase in volume.
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.
Okay.
We are planning for better growth this year.
Okay. Just the one follow-up on the wireless connectivity business. You gave some data points on how you see the mobile business growing this year. On the wireless connectivity, 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 continue to grow because these are very long design cycles. We've been working on this for, I don't know, five years, six years, a long time. The customer tends to use one solution, practically forever. As long as we continue to build the next generation, they will stick with us. That growth will naturally be there as more and more people want to have wireless devices, so mobile devices. The access points will continue to grow. The other area is the carrier-grade or service provider. Also, no, sorry. The service provider wireless will continue to grow as more and more service providers become more comfortable with using Wi-Fi for distributing videos to the TV, to the set-top boxes. Finally, as we're introducing more and more advanced these micro set-top boxes that looks like a dongle into consumers.
These devices actually, well, primarily based. Not primarily, today, is only based on Wi-Fi. Those devices are so much more advanced. Pretty soon, you have 4K, 2K devices, the size of smaller than a credit card, and we'll be able to decode all these 4K movies. Okay. Well, the existing set-top boxes cannot handle it, and they all, again, will be using Wi-Fi technology. We believe that those markets will have good opportunity for growth this year and even moving forward.
Of course, the access point two by two for the retail space as well, which is high volume as well.
Thanks.
Your next question comes from the line of Joseph Moore with Morgan Stanley. Please proceed.
Great. Thank you. My question's on the China-based baseband market. Do you see in that market, is there a preference for sort of local content? If you look at the deal that Intel did with Spreadtrum, does that create advantage for them because they're viewed as being local content? I mean, you guys have obviously been there for a while and have some pretty deep partnerships. Can you just talk about that dynamic and how that helps or hurts you in the next couple of years?
Wei, do you want to cover that?
Sure. 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. For our responsibility, we are delivering the highest quality and the best, most competitive mobile solution, which we're doing very well, and we continue to win more design wins and capture more market share. That's our focus.
I want to add to the answer, of course, China wants to both prefer to have local suppliers. We are a local supplier. Our designs are done in China. Our design is not done in any country. All this modem technology we talk about is built in China. At least all these SoCs are built in China. In a sense, we are a local Chinese supplier in this business.
The customers view it that way? I mean, obviously, that's been the history of the company. Is there a government policy that works against you?
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 ones. First semiconductor LTE solutions coming from Marvell, supporting the biggest operator in China, the China Mobile, by December of 2013. This is based on the track record. In terms of our advancement, driving, not only were leading the LTE, we were the first one to empower this ecosystem and deliver the LTE solution for China, specifically. Of course, as Sehat said, we are very strong player for local, and we're also global players.
Great. Thank you very much.
Okay. We'll 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? Just what are you seeing as adoption rate of SSDs on the client side?
I think we're seeing similar seasonality for both, Kevin. I think adoption rate for SSD 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. At least for the near term, we see similar seasonality for both.
Yeah. Besides talking about that, one thing I think that is worth noting is that the 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. When it comes to storage, reliability, security is a must.
Even though there are more players in the space, but if you look at who has the real deal solid solution, it's us as the number 1 players in the storage space.
Okay, great.
You have a follow-up, Kevin Cassidy.
If they are both seasonally the same, it seemed like SSD adoption would be slowing. You're saying it's not.
No. We are consistent actually in the last year, we even talk about hybrids. We do believe that, okay, in the long run, both the adoptions of SSD is not bad news for the HDD business. What it does is, it's going to create this opportunity to build hybrid devices by taking advantage of the instant-on capability of SSD. This is the reason 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 very low cost SSD solution for the lower capacity market. Then customers can supplement the capacity requirements by buying traditional HDD. They will give them much higher capacity, so at 1/10 the cost.
Maybe they spend, so for the total cost of less than, let's say, 12%, 13% of the true SSD cost, they got much higher capacity. This is the strategy that we've been using also to expand the market opportunity for SSDs.
Okay. Thank you.
That concludes our Q&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.