Good day, ladies and gentlemen, and welcome to the Third Quarter 2015 Marvell Technology Group Limited Earnings Conference Call. My name is Tony and I will 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 conference is being recorded for replay purposes.
I would now like to turn the conference over to your host for today, Suki Nagesh, Vice President of Finance and Investor Relations at Marvell. Please proceed.
Thank you, Tony, and good afternoon, everyone. Welcome to Marvell Technology Group's Q3 fiscal 2015 earnings call. With me on the call today are Sahas Satharta, Marvell's CEO Willy Dye, Marvell's President and Mike Rashkin, Marvell's CFO. We 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 summary of our quarterly 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 investments, product and market strategy, statements about 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 Q4 of fiscal 2015. 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 latest 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 Q3 financials, which were overall on target with our guidance. Our revenue for the Q3 was $930,000,000 which was down 3% from the prior quarter and slightly below our guidance. Our gross margins was slightly above our guidance and our EPS was right on target. The lower revenue in Q3 was mainly due to weaker mobile business and lower revenue from our networking business.
Our storage business, however, grew due to continued strength in both HDDs and SSD end markets. Despite the weaker revenue, we continue to focus on tight operational management and delivered margins and earnings that were either in line or better than expectations. We delivered the following non GAAP results for Q3. Gross margin of approximately 51%, operating margin of 17% and earnings per share of $0.29 We also bought back $45,000,000 worth of stock or 3,700,000 shares during the quarter and paid approximately $31,000,000 in dividends during the quarter. Now I would like to provide a brief update on each of our end markets.
1st, for our mobile and wireless business, revenue in this end very bullish about our mobile business. Recently Verizon launched their XLTE ready self branded Ellipsis 8 tablet in North America. Also China's leading consumer brand Meizu introduced its high end flagship MX4 Pro Premium 4 gs LTE smartphone for China Mobile and China Unicom using our LTE modem solutions. In addition, we have won numerous and major design wins with global Tier 1 OEMs for 4 gs LTE smartphones and tablets and expect these devices to launch in the first half of next year for entry level, mid range and high end devices. Furthermore, we recently introduced new products including our 64 bit quad core Armada Mobile PXA-nineteen08 and 64 bit octacore Armada PXA 19 36.
Many Tier 1 customers in Korea and China will introduce smartphones using these solutions in the first half of next year. The lower mobile revenue in Q3 was mainly due to the mix of our customer base and the shift from the carrier driven models to the open market in China, which require full turnkey support. In response, we are accelerating the introductions of our turnkey LTE platforms, including complete board layout and software targeting the open market. Our turnkey solution will be ready in Q1 next year and we expect revenue starting in Q2. We are also accelerating the expansion of our LTE solutions to markets outside of China and will subsequently bring our turnkey platforms to these markets.
Now in wireless connectivity, our strong high end technology continues to be well received in the market. For example, our 4x4-11ac device has number 1 market share in carrier grade access point supporting Tier 1 customers like Cisco. We believe we are well positioned to further expand into high performance 4x4 MIMO product categories in both retail and service provider gateways with more devices in the pipeline for launch next year. We're also a strong leader in gaming with leading solution at both Microsoft and Sony. Our Q3 revenue in connectivity represented another solid quarter and our performance overall was in line with expectations.
We saw increased fractions of for our industry leading 11ac, 2x2 MIMO and 1x1 combo solution across all major operating systems. In the coming months, we expect multiple new product launches in tablets, computers, set top boxes from Tier 1 customers. For Q4, we expect our mobile and wireless end market to decline slightly on a sequential basis mainly due to temporary softness in demand in mobile and seasonal declines in connectivity. Moving next to the IoT market. As you may recall, we are building general purpose microcontrollers that have integrated wireless connectivity.
This is an emerging market that has significant growth potential. As one of the earliest and leading players in this market, our Easy Connect wireless microcontrollers have been very well received. We have a very strong design pipeline across a broad range of applications including lighting, appliances, home automation and other smart home and commercial IoT applications across China and North American regions. We are already seeing volume ramps from several customers in lighting and home automation product categories. We recently announced a design win with our Easy Connect microcontrollers at Xiaomi for enabling the smart home vision and expect this to ramp in the next few quarters.
We're an early partner in Apple's HomeKit and have a number of Tier 1 customers designing HomeKit products using our EZ Connect microcontrollers. We expect these products supporting HomeKit to launch early next year. Next, moving to our Video business. We are very excited and pleased to see the success of Google Chromecast in the North American, European, South American and now Asian market. And our Q3 revenue increased over 30% from the previous quarter.
On the service provider side of the video business, LG U plus a leading service provider in Korea launched their 4 ks platform using our Armada 1500 solution. In addition, several other service providers will start shipping their own versions of IPTV and over the counter hybrid set of boxes using our Armada 1500 family of video SoCs over the next few months. Turning next to networking. Last quarter, we introduced the QuestFlow product line of breakthrough network search engines that broadens our growing networking product portfolio. It is widely acknowledged today's traditional TCAM based solutions are finally reaching its limits, both in terms of capacity and power dissipation.
Our QuestFlow products incorporate the most the industry most advanced algorithmic TCAM technology specifically addressing carrier class customers. The first device already enables customers to increase search capacity by 4 times at 1 fourth the power compared to current competitors, thus delivering an order of magnitude better performance power metric. We already actively engaged with multiple customers. We're extremely excited about the QuestFlow product and expect revenue from this product family in 2018. In Q3, our networking revenues declined 7% compared to prior quarter following a strong Q2.
This decline was mainly due to the well documented slowdown in carrier spending. However, during the quarter, we saw continued strength for our enterprise Ethernet and PON product lines. For Q4, we are expecting our networking business to be relatively flat on a sequential basis in line with end market trends. Next, moving on to storage. We continue to execute well and revenues came in line with our expectations, driven by strength in both HDDs and SSDs.
For Q3, revenues from our storage end market increased 3% sequentially. We continue to see strong demand for our storage products for cloud based and client applications. Starting with HDDs, our business grew sequentially and came in better than our expectations. Overall, we continue to improve our share of the total HDD market, driven by increasing tractions of our 500 gigabyte of Cloudera technology and continued share gains in the enterprise drives. Next, in SSDs, we saw another strong quarter in Q3 with double digit sequential growth in both volume and revenue.
We continued our market share gains during the quarter and remain the top SSD controller vendor. We continue to see growth of our SATA and PCIe SSD controllers at multiple customers. We are also on track to introduce multiple embedded SSD products for the mobile market for which we expect to see revenues in 2015. As a result, we believe our storage business remains on track to grow strongly this year and beyond. For Q4, we expect our storage end market to decline slightly on normal seasonality.
In summary, for Q3, despite weaker revenues, we carefully manage our operations resulting in margins and earnings that were in line or better than expectations. We continue to focus on increasing our operating leverage and we believe we are on track to meet our long term targets. I want to stress that we have numerous 4 gs LTE design wins at Global Tier 1 customers for entry level, mid range and high end smartphones and we are executing well on our product roadmap, including the accelerations of our turnkey LTE platforms. We believe all these efforts will position us to benefit greatly in 2015. Our connectivity business is also poised to grow strongly in 2015 with increased of our Wi Fi solutions in enterprise access points, service provider equipments, ultrabooks and LTE smartphones.
Our storage business remains healthy, driven by continued growth in both HDD and SSDs. Finally, our networking business remains on track to grow as we broaden our exposure across enterprise data centers and service provider customers. With that, I would now like to turn the call over to Mike to go over our Q3 financial results and Q4 outlook.
Thank you, Sahat, and good afternoon, everyone. Moving to our financials. As Sahat mentioned, our Q3 financial results were overall on target with our guidance. While revenues were below guidance, our gross margin was above guidance and our EPS was on target. We reported revenues of $930,000,000 for the Q3, which was a decline of 3% sequentially as a result of weaker mobile sales and softer networking sales to carrier customers.
As Ihad said earlier, we expect this softness in mobile to be temporary and we expect to pick up starting in the first half of twenty fifteen. Despite this short term slowdown, we have maintained our focus on operational efficiency. Year to date in fiscal 2015, our revenues have grown by 15% compared to the same period in fiscal 2014, while our non GAAP operating income has grown nearly 30%. Moreover, our year to date mobile and wireless revenue, our largest growth area, have grown by more than 25% compared to last year. Our improved efficiency will result in greater operating leverage as our growth continues.
Moving on to details on our various end markets. Our mobile and wireless business declined 13% sequentially and represented 27% of overall sales. Shipments of our baseband chipsets were weaker sequentially due to demand softness from our Asian customers. In networking, our revenue declined 7% sequentially and represented approximately 18% of total sales. Networking sales in Q3 were lower mainly due to weaker spending by service providers.
In storage, our overall revenue grew 3% sequentially and represented approximately 49% of total sales. Q3 sales in this area were in line with our expectations and driven by growth in both our HDD and SSD businesses. Moving next to margins and expenses. Our non GAAP gross margin for the Q3 was approximately 51%, which was above the midpoint of our guidance range and improved 40 basis points sequentially. The main reason for this was a more favorable product mix during the quarter.
Non GAAP operating expenses came in at $319,000,000 below our guidance range due to continued operational discipline across all our businesses. This resulted in a non GAAP operating margin of 17% for the quarter, flat sequentially and 70 basis points better than the midpoint of our guidance range. Net interest and other income was about $5,000,000 and we recognized a tax expense of $5,000,000 in the quarter. This resulted in non GAAP net income for the Q3 of $155,000,000 or $0.29 per diluted share. This was in line with guidance.
The shares used to compute diluted non GAAP EPS during the Q3 were 533,000,000 dollars Cash flow from operations for the Q3 was $195,000,000 and free cash flow for the 3rd quarter was $167,000,000 or approximately 18 percent of revenue. Now summarizing Q3 results on a GAAP basis. We generated GAAP net income of $115,000,000 or $0.22 per diluted share. The difference between our GAAP and non GAAP results during the 3rd quarter was mainly due to stock based compensation expense of $34,000,000 $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 end of the third quarter was approximately $2,400,000,000 an increase of 4% from the previous quarter. We also used $45,000,000 to buy back approximately 3 point 7,000,000 shares of stock during the quarter. We currently have about $213,000,000 remaining in our authorized repurchase program and we will continue to be opportunistic in our buybacks going forward. We also paid dividends of $31,000,000 in the quarter or equivalent to $0.06 per share. Net inventory
Thank you, Sanjay.
Thanks.
Your next question comes from the line of Harlan Sur of JPMorgan. Please proceed.
Hi, good afternoon and thanks for taking my question. So it would seem that you're pretty close to a bottom on your 3 gs baseband business. It seems like it's declined at least 30% sequentially each quarter over the past two quarters. So you've got the ramp of your 64 bit platform. It looks like the 19 0 8 ultra low cost maybe starts to ramp in Q1.
I guess two questions here. Do you anticipate your 4 gs crossing over 3 gs in the April quarter? And do you expect your mobile segment to actually start to drive some sequential growth in Q1?
Yes. The answer is yes. And the other thing is, if you look at the 3 gs situation, it's the mix of customers. As you know, our customers in the region of Korea, for example, you see a little softness. But for GLTE, we believe 2015, this coming year is going to be a big year for the deployment.
And why? Because we one of the leaders like us is going to drive to the masses. And our recent introduction of 1908, the 4th core as well as the 8 core 1936. And that covers the global mode. And we are very pleased to see our major design wins from customers in Korea, in China.
And the other thing is not only our solution is high performance, it's very low power. Now remember the 8 core 4 gs LTE we are one of the player introducing the product. But what we have done is we optimize the solution for performance and also very, very low power, because some of our key competitions they're designed based on software. So So the power consumption is high, much high. And we also optimize our AP application processor design.
So our die size is very small. I believe it's roughly maybe less than more than 20% to 30% kind of range. So overall today if you look at our solution based on our design win and the feedback from our customer base and we are covering all the way from entry level smartphones to midrange massive market as well as to high end. We believe we are very well positioned to address all segment markets and it is our mission to drive for the mass deployment of 4 gs LTE. So therefore, the cost to the point where people will upgrade to 4 gs for example entry level phones believe or not 4 gs LTE is RMB399 in China, which translates to around US65 dollars Right.
Arun, do you have a follow-up?
I do have a follow-up, but just one follow-up on that question. So lately you do expect so the team expects the mobile business to start to grow again in Q1?
Absolutely. Yes. We are very
Okay, great. And I appreciate that Weili. Okay. And then my follow-up question, the team has not been very active.
In fact, it hasn't been in
the market at all with the repurchase program over the past 4 quarters. So it seems that very recently, the special master has agreed to or is okay with the arrangements that you've made with your surety bondholders. It's I think what the team has been waiting for in order to restart the stock repurchase program. It looks like you repurchased a bit here in Q3. So should we assume that on a go forward basis, there are no more restrictions now on the buyback and that you have the full capability to put the $215,000,000 or $218,000,000 of authorization to work in the markets?
Well, there never have been any actual restrictions. We've always said that what we were doing is being opportunistic. And so we felt that this was the right time to enter and buy back. And we now have 213,000,000 still authorized and we will continue to buy back.
Okay. Thank you.
Thanks, Harlan.
Your next question comes from the line of Mr. Doug Friedman of RBC. Please proceed.
Hi. Thanks for taking my question. As we wrap up 2014, I know there was a wide range in expectations on the total units the LTE market would be in China. Can you give us an idea of where you think that ended? And what is the outlook that you have for that market in terms of units for 2015?
Well, I believe the overall let's say the biggest operator China Mobile, right? I believe it's going to be for this year will be north of 50,000,000 units.
Next year?
Well, next year, I'm quite confident it probably again, this is what I believe will double.
You
I'm sorry, we missed your question. Can you repeat that please? Sorry, Doug. I think we're having a hard time hearing you. We'll catch you offline.
Operator, Tony, can we move to the next caller please?
Your next question comes from the line of Quinn Bolton of Needham and Company. Please proceed.
Hi, Swad and Ghisli. I wanted to follow-up on your design wins for the LTE handsets as you look into next year. Are those all on the new 1936 and 1908 platforms? And then secondarily, as you ramp the 1908 platform, the low cost platform and prices come down into the high single digit range, can you talk to us about what you see margins at that value segment seen? Can they still are they still accretive to overall mobile and wireless?
Or do you have different expectations now in margins given the pricing environment in the low end?
First of all, let me address the customers. As you can see, so far we this is based on our public announcement. Our customers such as Samsung, Lenovo, Yilum Coupe, Huawei and ZTE and HIFER and so on. Obviously, with our new generation most recent announcement of 64 bit running the latest Android L operating system. And this is we believe it has a very complete solution offering for the high end phones all the way to the mid range and to the entry phones.
And we are very, very hopeful. I believe that we're going to have a very significant growth for the coming year. And as you know when you especially addressing the entry level homes, the margins is going to be challenging, but we continue to optimize our cost. It is my hope that we can grow very high volume and with our low power, low cost, smaller die size and as well as the performance, hopefully, we can do better from all aspects.
Right. And to add to that, remember, we've continued to focus on 2 key metrics for the company, right? Revenue growth and operating income. And as Mike mentioned earlier, if you look at our year to date performance on that front, revenue growing 15% and operating income growing twice that, we are we'll continue to focus on those key metrics, even though we are in some very priced competitive markets.
Okay. Thank you.
Your next question comes from the line of Mr. John Pitzer of Credit Suisse. Please proceed.
Hey, this is Ryan Carpenter in for John. Just a question on sort of 3 gs versus 4 gs. Can you give some color in terms of the mix in Q3 and the mix embedded in your guidance? Presumably the 3 gs declines were outpaced sort of 4 gs. But can you give us some color?
I mean did 4 gs grow in Q3? And what are expectations for fiscal Q4?
Yeah. Hi, Ryan. This is Suki. We haven't provided that kind of mix in the past. We'll refrain from doing that in this call as well.
As we mentioned earlier in our prepared remarks, it is our overall the overall mobile market has been weak. And I don't think it should come as a surprise to you given the results of many of our customers and our competitors. So generally, I think all we can say at this point is it was weak across the board.
Okay. And then just a real quick clarification. Wendell, you mentioned that calendar 2015 would see a doubling. So I presume that's 100,000,000 unit expectation for 2015. Just a quick clarification on that LTE?
Yes. Okay. And then my last question, if I look at sort of the revenue miss versus the lower cost of goods, it implies sort of a low 30% gross margin for the revenue that was for the shortfall in the revenue. And presuming that most of that was obviously most of that was obviously most of that was in the mobile and wireless. So can you talk through the expectations for what gross margins are going to tend to do going forward?
You mentioned that the carrier is less of an impact to LTE and you guys are looking at this more turnkey model. Does that promote or is that customer base typically one that is more aggressive in terms of the device ASPs? Or sort of how should we think about the gross margin progression as you guys as the market kind of shifts from a carrier to a more retailer base?
Let me let me Chip you. Actually, it's the opposite. The turnkey model actually will have higher gross margin because the customers are not investing in R and Ds at all. What they're doing is they're just only doing the procurement and the manufacturing and the distributions of the product lines. So if anything, okay, our gross margins can only improve when we go to
the 3rd key model. Right. And so the other thing there, Ryan, also is if you look at some of these customers, right, the ones in the phone line customers, they're not really that they're looking at some of these high end devices. We announced one more from Meizu just recently. These are high end devices and they carry higher pricing.
So obviously our margins will be better as we move more and more in that front. Got it. Thanks everybody.
Your next question comes from the line of Mr. Ian Ng of MKM Partners. Please proceed.
Ian, you there? You may be up
on mute. Could you talk a little bit about networking and Ethernet switching? It looks like Broadcom has this tomahawk chipset coming out 40 gig and 100 gig at the data center. Talk about competitive landscape there and how much of the white box market you're addressing? Thanks.
So networking, so on the we have competitive products. We were maybe a little later in the market. We do have competitive products in the market. You'll see more of that coming to the market next year. We have a slew of products that are coming to we've introduced this year and in the Ethernet side switch side.
So at least for the short term while you may see some you may not see it in the market, we are working actively on design wins for some of the competitive products.
And in addition to what Suki said, if you look at the Ethernet, the 10 gig PHY solution and we actually leading the Broadcom and we had major wins at Tier 1 customers. So we are very pleased about that. And also overall in terms of today how the technology are defined and developed, cloud infrastructure. This requires storage, networking and computing and Marvell being addressing end to end market with all the complete technology impacts some of new way of defining and designing solutions for networking infrastructure cloud Marvell is actually leading the path. So just stay tuned.
We'll give you good updates. Yes.
We have a lot of different products right in networking. We have our CPUs. We have our Ethernet silicon. We have modem technology. We have base station technology, programmable processors.
So we have a complete portfolio of products and we should see steady improvement in our networking business as we head into next year.
I think there's a lot of times, okay, people are confused about our networking business, okay, a lot of questions we get comparing against Broadcom. The only things that we didn't we don't have yet is the switch fabrics, the very, very high end switch fabrics. And as I mentioned in the last quarter, I think a couple the last quarter or so, okay, our switch fabrics, our Ethernet based switch fabrics will be out toward the second half of next year when those are the ones that's going to completely leapfrog the existing cell based switch pair of X solution. Other than that, we have everything. So, okay, even as I just announced earlier, they are quite slow, okay.
This is an area that historically we do not play in, okay? But now we have suddenly, we have the all of a sudden, we have the industry best TCAM solution in the market. It's as I mentioned 4 times the capacity and 1 fourth the power dissipation. There is a major, major differentiation. And today, it's okay.
This is maybe like 99% Broadcom business. So and with this technology, okay, you'll see soon that our a lot of customers are going to move to our solutions.
Thanks, Raj. And then, yes, my follow-up
is in storage here. So what
are you looking for to drive more adoption on the client SSD market? I know memory guys are looking at transitioning to TLC from MLC. Is there anything else in terms of some catalysts to drive more reduction on the client SSD side?
Yes. All the above, if you look at the we say it very consistently as the price of the flash goes down, the volumes will go up. So there's no way to get around to that to get around of that. Now of course on our side, we continue to build more advanced HSSD solution to deal with the shrinking, the device syncing of the I mean, the flash the syncing of the flash chips because as those devices get smaller and smaller, they get the reliability get worse and worse. So we are not a bottleneck.
We are always ahead in terms of developing this technology. So and the other part is building the different classes, okay? When we enter this business, we started with the higher end device like the 8 channel device. As we go to higher volume, okay, we need to reduce that to 4 channels and eventually even fewer channel devices to see the volume to take off. But now, okay, there will be time, okay, when the lowest end will probably the volume will be very, very high, but there will be more a companion of the user in the laptop as a companion to hard disk drive to be like a hybrid storage capability.
Thanks, Todd.
Thank you, Ian.
Your next comes from the line of Mr. Daniel Lemire of Ladenburg Thalmann. Please proceed.
Thanks a lot. Thank you for taking my call. A follow-up question here on the storage side. In terms of share here both on the hard disk drive and SSD side, I mean given that your former competitor had a there was a lot of disruption in the market through the past year. Has that pretty much played out at this point?
And do you feel that you maxed out the share opportunity in the SSD side? Or do you think you still have more opportunity for growth there?
Yes. SSDs still have a lot of opportunities. Most of the revenues that we have are still on the higher end, okay, because, okay, early adopters tend to be like want to have the best, best performance. As you go to as you want to as we try to address the higher volume markets, and then we need to scale down, lower the cost and okay, along with it, obviously, it'll also lower the performance to get the cost target. So there's still a lot of opportunities in the mainstream SSD and further down the road, I guess, I mentioned earlier is the hybrid.
There will be huge market of opportunity for building hybrid SSD, HDD combination.
And in terms of the hard disk drive side, past quarters we've seen obviously PCs picking up again, market stabilizing. What's your assumption I guess into next year for that business? I mean, in terms of overall visibility?
Yes. Last quarter, I mentioned about this, okay? I believe, okay, with the new introductions of Intel's 14 nanometer PC Processors, there will be new demands of upgraded PCs. PCs, they are better performance, lower power, longer battery life. So I do believe that there will be increased demands of HDD as a result.
And also SSDs, okay, that we play into it.
Yes. To add on what Sajid said, remember the HDD is not just for PC market. In fact, the overall storage technology demand is growing very fast for the cloud infrastructure. So we believe our leadership in storage technology whether or not it's SSD or the hardest disk drive and our business is very healthy. We're very pleased about this.
So we do spend a lot as you know Daniel, we do have spend a lot of different end markets and enterprise is definitely an area that we're strong in as well.
Okay, great. Thanks.
Your next question comes from the line of Mr. Blayne Curtis of Barclays. Please proceed.
Hey, good afternoon. Thanks for taking
my questions. Just I just wanted to better understand
the moving pieces in the mobile and wireless segment in October January. I just want to confirm wireless is up and cellular is down and then into the January quarter are they both seasonal?
In the January quarter, Blayne? Yes. You talked about Q4? Q4, no, it should be both will be down is what we said.
I think it's something about the I thought that the wireless is more of connectivity is more like seasonal. And the wireless is the temporary slowdown softness. So it's a very, very short term issue. And then
the softness between the mobile market
sorry, the softness between the mobile market,
do you think that's indicative of the overall market or your customers more levered to the carrier channel? And then if you could just comment on if you've seen any new competition come in
to enable these lower cost phones?
I think it was as we said earlier that the softness is due to the faster transitions from the carrier market to the the open the flat what do you call it the turnkey model. So that is really, really what we refer to why we say it's a short term because fundamentally, we have actually leading edge solutions, just the turnkey part of the solutions won't be ready till Q1 next year. And then that's why we say Q1 will be available, the turnkey and then production will start in Q2.
Yes. Also it's the we mentioned about mix of the customers because some of our key customers used to only addressing the carrier market. So now also expanding to address the online as well as retailer. So all this will be helpful for us as well.
Yes. So Blaine, as you probably also know, we do have weakness from Korea from one of our largest smartphone manufacturers, right? And so that's a pretty well documented weakness. So that's one of the reasons as well. Great.
And then just as you look into the designs for the first half of next year calendar year, are you seeing any other suppliers entering the market in addition to Qualcomm and yourself having primarily the share this year?
No, I know of. Okay. In LTE, pretty much, we only have 3 suppliers, Qualcomm, MediaTek and us. And as you know MediaTek is a good chip solution still. And the LTE is a lot of it's a soft modem technology.
So from PowerPoint of view it's very, very high. So we're the only one that have the most next to Qualcomm, we're the only one that have this hardware modem.
Which is for very low power.
Your next question comes from the line of Mr. Christopher Rolland of FBR Capital Markets. Please proceed.
Thanks guys. Thanks for the question. Back to the 30% China LTE share for this year and that's nice that units may double next year. When you guys are fully launched on this low cost model, how do you expect 4 gs share to trend in 2015? And then in particular, how do you think you guys are going to cost compare to the MediaTek 1 chip solution?
Let's talk about the 1 chip. So our chips today is already smaller than MediaTek, even if are able to build a single chip solution, meaning that if they once they build the hardware modem, so remind you, today they're still using the software more soft modem. So assuming they have the hardware modems ready at some point in time, I don't think it's going to be any smaller than our chips. So from the cost point of view, we'll be let's call it the let's call it the K OE will be equal. The key that we need to deliver is the turnkey solution so that, okay, we can also address the very large volume opportunity in the open market.
So really, as I said earlier, this is more of a temporary advantage that they have right now on the SIMT model. In terms of performance, okay, our performance is it's world class, okay? We our performance in the processor is if it's not equal to the best, okay, it's better. Our graphics is actually we've already proven in every product that we build, our graphics is better. So I don't think okay, this is the reason why we say we are very bullish.
A lot of our a lot of Tier 1 customers, we have these end wins because they know when they evaluate our products, we have leading edge solutions for the price point that they are 19,360 optical core. So okay? So they can cover both end of the spectrum of the smartphone, the LTE smartphones.
And the other thing I think is also very key even though sometimes it's a little subtle is the security capability. And we have for this new generation LTE platform, we have enhanced our security processor. So having secure platform and technology is very, very key also.
Okay, great. Thanks. And I guess following up there, if you guys did want to hazard a guess on 2015 share that'd be great. But switching gears, now that you moved over to 64 bit mobile chips, what can we expect across the full line of mobile, across infrastructure products, across set top box? And is this going to be increased OpEx costs?
And what's the sort of timing of migration there? Thanks.
64 bit no, 64 bits will okay, more and more products will have 64 bits, but that's already in our plan. In terms of increased OpEx cost, If that's not it's not going to materially change. But the fewer products, Okay. This is also the reason why we offer the last 2 years, we've been saying that we can maintain our OpEx flat because we could see that those consolidating the product lines into fewer chips, fewer products okay, will translate into lower cost to us. But because the 28 nanometer also increased cost, okay, that's why we say flatten flat OpEx as a result.
If I may just say something about OpEx, We have taken a very strict look at OpEx and determined to keep that at least flat. And actually we have been declining. And even with our growth, I think it's unusual for a company to be growing and have its OpEx go down at the same time. And introducing advanced products. And introducing the most advanced products in the world.
And as we go forward in the following year, we also expect that that trend in OpEx is going to continue. Our growth is going to continue. Our OpEx are going to go down and our operating income leverage is going to increase.
Thanks. Very helpful.
Thank you, Greg.
Your next question comes from the line of Mr. Chris Caso of Susquehanna. Please proceed.
Yes. Thank you. Just another follow-up question with regard to handsets and where you see your long term competitive advantage in this space? And certainly understand what you're saying in the short term with the turnkey solutions. But once you have those solutions in place, I mean, basically what can Marvell do that the competition, the Qualcomm, the MediaTek can't do that drive your customers back to you over the long run and allow you to get some good margins out of this business?
Well, let me give you one obvious reason, which is based on track record. Now remember several years ago, we introduced our TDS CDMA 3 gs advanced technology for China Mobile. And that was our foundation that we built so that last December we were the 1st ahead of all competitions introduced our 4 gs TDLT advanced technology for China Mobile. So as a result today, if you I don't know if you try these phones in China, the technology there whether or not 3 gs or 4 gs if it's mobile solution based, it's a lot more robust and high performance. So we are very bullish.
Even though we're one of the youngest mobile players to enter this market. But as far as the biggest consumer base in China, we absolutely have leading technology. So this is a very obvious advantage.
Yes. So Doctor. Youssef, so we have an advantage. If you look on the performance side what Bailey mentioned, it's something that people do not talk about much about. Our performance or modem throughput is actually higher compared to anybody else.
So that's proven. Okay, if you talk to the carrier, they will acknowledge that. So other types other advantage that we have is that we also have a lot of new technology development in building new system architecture. But this is more longer term because a lot of these things, okay, takes time to be adopted into the market. But these are the areas that we're putting a lot of investments, not just for the mobile actually, it's all across the company.
So the technology that we built, okay, will be used across the company, but will also benefit the mobile business.
Okay. As a follow-up, could you comment on what you've seen in the game console area that's historically been area seasonally strong for you? There were some mixed signals coming out of your competitors. Could you give some details about what you were seeing in game consoles?
So Chris on the game console side, it was relatively in line with what our expectations was heading into the quarter. I think one of our game console customers was maybe slightly weaker than expected. But overall, there was no big change from our point of view.
And from a content perspective, you guys are maintaining what you have in that area?
Absolutely. Okay. Thank you.
Your next question comes from the line of Mr. Mike Burton of Breen Capital. Please proceed.
Hey, thanks for taking my question. So looking at the storage market, another nice quarter for SSDs. Can you comment on the current pricing environment in SSDs? There was some speculation that there's some increased competition from the Taiwanese competitors. And then also you mentioned you would start to see some embedded revenues in 2015.
Should we assume that's more back end of the year? And is it tied to 1 or more flash OEMs or for a particular standard?
So are you talking about SSDs for the back end of the year, Mike? Or
Well, I thought you mentioned embedded. So I assume it was an eMMC that you're talking about. Is it eMMC or UFS?
Yes. That will be probably more back end loaded. But as far as pricing, we haven't seen any big changes. We still have if you remember on SSDs, we're right now in our 5th generation technology. So when all the stuff that you hear about Taiwanese competition is just that you're just hearing it, right?
I mean we have significant advantages over many of the players in the market. 1 of our competitors as you know has gone away. So we feel pretty strongly about the growth opportunity for our SSD business. Yes.
In this area of SSDs, especially when we look to LDPCs, we have very strong IP portfolio. When I say very strong, it's extremely strong IP portfolio. So this is an area that we haven't seen anybody from anyone, especially from Taiwan to be in this area. So nobody is playing into this market. So, yes, if you look at the TLCs and especially in the 3 d TLCs, Without LDPCs, it's hopeless.
It will be a huge liability issue for the flash manufacturers to deliver SSD without LDPC technology. So and we've been in this area for a long time and we got a lot of proprietary technology and heavily, heavily patented technology. So and as you go to down the road as we go to play into the embedded space, we have to deploy more and more of this technology to go after the market that traditionally is not our business. So it's the opposite. So we're going to go into their SandBox instead of
We definitely have intentions in going after some of the markets that some of these Taiwanese players have today.
Yes. And I believe it's very hard for the time especially the Taiwanese players to compete with us because our solution is very high performance reliable. Now remember for storage reliability is very key. Nobody wants to lose data. And the other thing is security.
We have security features where those Taiwanese guys could not offer. In fact, recently we heard feedback from some key customers and they're concerning about the solutions without the security. They don't believe they can even use them.
All
right. Thanks, Mike. Tony, we'll take one last question please.
Your next question comes from the line of Srini Pajuri of CLSA. Please proceed.
Hey, thanks for taking the question. This is Ryan Goodman in to push that in the to push that into client markets? And then just any sense of timing and how quickly that type of product can translate to revenue?
Yes. So the NVMe products okay address okay not okay. There are several products okay from all the way from the high end infant to the entry level. But the biggest opportunity obviously in the entry level side. This is an area that is still very, very new, okay.
I don't know if we have announced it yet, but we just recently that product has passed the compliant test at the UNH. It's a consortium, okay, run by I think the UNH. So we completely passed their test on the first path. So this is this could be this product could be very, very high could give us high volumes next year to address the very low end entry level SSDs to support both the SATA and PCIe.
Okay, great. Yes, just kind of different path. Just do you guys have any update on the CMU litigation? I know probably not a ton of detail, but just maybe in terms of what to expect in terms of timing or if the OpEx is probably going to hold kind of at a relatively flat level around $2,000,000 to $2,500,000 I think for the quarter. And then also in the 10 Q, I know you guys had put out a specific number for potential damages.
It was $1,540,000,000 last quarter with some royalties after that. Is there an update to that number as well?
The case is proceeding. The briefing is about done. I think we're going to file our reply brief to them perhaps today. And the next step would be oral arguments early next year. And then hopefully we will get a decision at the end of sometime in July in that timeframe.
Your other question was with regard to legal expenses related to that. I believe that those should decline now that the briefing is over and there's the oral argument, but basically that should be a much lower amount of expense.
Yes. I don't think we should see any big increase there on that line, Ryan.
And in terms of the judgment, the amount of the judgment is still the same. There is the $1,500,000 and then there's some ongoing royalties and that hasn't changed.
Okay. Thank you.
Thank you. And please proceed with closing remarks.
Thank you, Tony. I would like to thank everyone for their time today and continued interest in Marvell. We look forward to speaking with you in the coming months. Thank you and goodbye.
Thank you.
Thank you. Thank you.
Ladies and gentlemen, thank you for your participation. You may now disconnect and everyone have a great day.