Good day, ladies and gentlemen, and welcome to the third quarter 2015 Marvell Technology Group Ltd. earnings conference call. My name is Tony, and I will 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 conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Sukhi 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 third quarter fiscal 2015 earnings call. With me on the call today are Sehat Sutardja, Marvell's CEO; Weili Dai, Marvell's President; and Michael 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 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&D investment, 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 the 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, 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. With that, I would now like to turn the call over to Sehat.
Thanks, Sukhi. Good afternoon, everyone. Today, we reported third-quarter financials, which were overall on target with our guidance. Our revenue for the third quarter was $930 million, 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 continued 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 million worth of stock or 3.7 million shares during the quarter and paid approximately $31 million in dividends during the quarter. I would like to provide a brief update on each of our end markets. First, for our mobile and wireless business, revenue in this end market was soft and declined approximately 13% sequentially. Despite this short-term weakness, let me stress that we are 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 4G LTE smartphone for China Mobile and China Unicom using our LTE modem solutions.
We have won numerous and major design wins with global tier 1 OEMs for 4G 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. We recently introduced new products, including our 64-bit quad-core Armada mobile PXA1908 and 64-bit octa-core Armada PXA1936. 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. In wireless connectivity, our strong high-end technology continues to be well-received in the market. For example, our four by four 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 four by four MIMO product categories in both retail and service provider gateways, with more devices in the pipeline for launch next year. We are 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 traction for our industry-leading 11AC, two by two MIMO, and one by one 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 EZ-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 EZ-Connect microcontrollers at Xiaomi for enabling their smart home vision, and expect this to ramp in the next few quarters. We are 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. Our Q3 revenue increased over 30% from the previous quarter. On the service provider side of the video business, LG U+, a leading service provider in Korea, launched their 4K platform using our Armada 1500 solution. In addition, several other service providers will start shipping their own versions of IPTV and over-the-top hybrid set-top boxes using our Armada 1500 family of video SoCs over the next few months. Turning next to networking. Last quarter, we introduced the Questflo product line of breakthrough network search engines that broadens our growing networking product portfolio. It is widely acknowledged today, traditional TCAM-based solutions are finally reaching its limits, both in terms of capacity and power dissipation.
Our Questflo products incorporate the industry's most advanced algorithmic TCAM technology, specifically addressing carrier class customers. The first device already enables customers to increase the search capacity by four times at one-fourth the power compared to current competitors, thus delivering an order of magnitude better performance power metric. We already actively engage with multiple customers. We are extremely excited about the Questflo product and expect revenue from this product family in 2015. 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 continued to execute well, 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 fractions of our 500 GB per platter 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 remained the top SSD controller vendor. We continued 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 managed our operations, resulting in margins and earnings that were in line or better than expectations. We continue to focus on increasing our operating leverage, we believe we are on track to meet our long-term targets. I want to stress that we have numerous 4G LTE design wins at global tier 1 customers for entry-level, mid-range, and high-end smartphones, 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 adoptions of our Wi-Fi solutions in enterprise access points, service provider equipment, 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 third quarter financial results and fourth quarter outlook.
Thank you, Sehat, good afternoon, everyone. Moving to our financials. As Sehat mentioned, our third quarter financial results were overall on target with our guidance. While revenues were below guidance, our gross margin was above guidance, our EPS was on target. We reported revenues of $930 million for the third quarter, which was a decline of 3% sequentially, as a result of weaker mobile sales and softer networking sales to carrier customers. As Sehat said earlier, we expect this softness in mobile to be temporary, we expect a pickup starting in the first half of 2015. 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 third quarter 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 million, 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 million, and we recognized a tax expense of $5 million in the quarter. This resulted in non-GAAP net income for the third quarter of $155 million or $0.29 per diluted share. This was in line with guidance. The shares used to compute diluted non-GAAP EPS during the third quarter were 533 million.
Cash flow from operations for the third quarter was $195 million, and free cash flow for the third quarter was $167 million, or approximately 18% of revenue. Now, summarizing Q3 results on a GAAP basis. We generated GAAP net income of $115 million or $0.22 per diluted share. The difference between our GAAP and non-GAAP results during the third quarter was mainly due to stock-based compensation expense of $34 million 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 end of the third quarter was approximately $2.4 billion, an increase of 4% from the previous quarter. We also used $45 million to buy back approximately 3.7 million shares of stock during the quarter.
We currently have about $213 million remaining in our authorized repurchase program, and we will continue to be opportunistic in our buybacks going forward. We also paid dividends of $31 million in the quarter, or equivalent to $0.06 per share. Net inventory
Be well within what we expect our OpEx should be. Thank you, Sanjay.
Thanks.
Your next question comes from the line of Harlan Sur of J.P. Morgan. Please proceed.
Hi, good afternoon, and thanks for taking my question. It would seem that you're pretty close to a bottom on your 3G baseband business. It seems like it's declined at least 30% sequentially each quarter over the past two quarters. You've got the ramp of your 64-bit platform. Looks like the 1908 ultra-low-cost maybe starts to ramp in Q1. I guess two questions here. Do you anticipate your 4G crossing over 3G 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. The other thing is, if you look at the 3G situation, it's a mix of customers. As you know, our customers in the region of Korea, for example, you see a little softness. 4G LTE, and we believe 2015, this coming year, is going to be a big year for the deployment. Why? Because one of the leaders, like us, is going to drive to the masses. Our recent introduction of 1908, the four-core, as well as the eight-core PXA1936, that covers the global mode. We are very pleased to see our major design wins from customers in Korea, in China. The other thing is, not only our solution is high performance, it's very low power. Now remember, the eight-core 4G LTE, we are one of the players introducing the product.
What we have done is we optimized the solution for performance and also very low power, because some of our key competitors, their design based on software, so the power consumption is much higher. We also optimize our AP, application processor, design, so our die size is very small. I believe it's roughly maybe 20%-30% kind of range. Overall, today, if you look at our solution based on our design win and the feedback from our customer base, we are covering all the way from entry-level smartphones to mid-range mass 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 4G LTE.
Therefore, the cost to the point where people will upgrade to 4G, for example, entry-level phones, believe it or not, 4G LTE is RMB 399 in China, which translate into around $65.
Right. Harlan, do you have a follow-up?
I do have a follow-up, but just one follow-up on that question. Weili, the team expects the mobile business to start to grow again in Q1?
Oh, absolutely. Yeah.
Okay.
We are at a very-
All right. Okay, great. No, I appreciate that, Weili.
Yes.
Okay. 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 four quarters. It seems that very recently, the special master has agreed to, or is okay with, the arrangements that you've made with your surety bond holders. I think what the team has been waiting for in order to restart the stock repurchase program, looks like you repurchased a bit here in Q3. 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 million or $218 million 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. We felt that this was the right time to enter and buy back. We now have $213 million still authorized, and we will continue to buy back.
Okay. Thank you.
Thanks, Harlan.
Your next question comes from the line of Mr. Doug Freedman 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. I believe it's going to be for this year, will be north of 50 million units.
Next year.
For next year, I'm quite confident it probably, again, this is what I believe, will double.
You have a follow-up, Doug? Doug? All right. I'm sorry, we missed your question. Can you repeat that, please? Oh, sorry, Doug. I think we're having a hard time hearing you.
Sure.
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 & Company. Please proceed.
Hi, Sukhi and Weili. I want to follow up on your design wins for the LTE handsets as you look into next year. Are those all on the new PXA1936 and 1908 platforms? 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 being? Are they still accretive to overall mobile and wireless, or do you have different expectations now on margins, given the pricing environment in the low end?
First of all, let me address the customers. As you can see, so far, this is based on our public announcement. Our customers, such as Samsung, Lenovo, Yulong, Huawei, ZTE, Haier, and so on. Obviously, with our new generation, most recent announcement of 64-bit running the latest Android Lollipop operating system, 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 phone. We are very hopeful, I believe, that we're going to have a very significant growth for the coming year. As you know, when especially addressing the entry-level phones, 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, as well as the performance, hopefully we can do better from all aspects.
Right. To add to that, remember, we continue to focus on two key metrics, right? Revenue growth and operating income. 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'll continue to focus on those key metrics, even though we are in some very price competitive markets.
Okay. Thank you.
Your next question comes from the line of John Pitzer of Credit Suisse. Please proceed.
This is Ryan Carver in for John. Just a question on sort of 3G versus 4G. Can you give some color in terms of the mix in third quarter and the mix embedded in your guidance? Presumably, the 3G declines outpaced sort of 4G, but can you give us some color? I mean, did 4G grow in third quarter? What are expectations for fiscal fourth quarter?
Hi, Ryan. This is Sukhi. 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, the overall mobile market has been weak, I don't think it should come as a surprise to you given the results of many of our customers and our competitors. Generally, I think all we can say at this point is it was weak across the board.
Just a real quick clarification. Weili, you mentioned that calendar 2015 would see a doubling. I presume that's 100 million unit expectation for 2015. Just a quick clarification on that LTE.
Yes.
Okay. 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 shortfall on the revenue. Presuming that most of that was obviously in the mobile and wireless. 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 a, or is that customer base typically one that is more aggressive in terms of the device ASPs? How should we think about the gross margin progression as the market kind of shifts from a carrier to a more retail unit base?
I mean, let me chip in. Okay. Actually, it's the opposite. Okay. The turnkey model actually will have a higher gross margin because the customers, okay, are not investing in R&Ds at all. What they're doing is they're just only doing the procurements and the manufacturing and the distributions of the product lines. If anything, okay, our gross margins can only improve when we go to the turnkey model.
Right. The other thing there, Ryan, also is if you look at some of these customers, right, the ones in the online customers, 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. 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 Ing of MKM Partners. Please proceed.
Ian, you there? You may be on mute.
I'm here. Yeah. Could you talk a little bit about networking and Ethernet switching? 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.
Networking, 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 we've introduced this year. In the Ethernet switch side. At least for the short term, while you may not see it in the market, we are working actively on design wins for some of the competitive products.
In addition to what Sukhi said, if you look at the Ethernet, the 10 GigE PHY solution, we actually leading Broadcom. We had major wins at tier 1 customers. We are very pleased about that. Also, overall, in terms of today, how the technology are defined and developed. Cloud infrastructure, this requires storage, networking, and computing. Marvell addressing end-to-end market with all the complete technology. In fact, some of new way of defining and designing solutions for networking infrastructure cloud, Marvell is actually leading the pack. Just stay tuned. We'll give you good updates.
Yeah. 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. 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, people are confused about our networking business. A lot of questions we get comparing against Broadcom. The only things that we don't have yet is the switch fabrics, the very high-end switch fabrics. As I mentioned in the last quarter, I think the last quarter also, 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 fabric solution. Other than that, we have everything. I just announced earlier the Questflo. This is an area that historically we do not play in, but now suddenly, all of a sudden, we have the industry-best TCAM solution in the market. As I mentioned, 4 times the capacity at one-fourth the power dissipation. There is a major differentiation.
Today, this is maybe like 99% Broadcom business. With this technology, you'll see soon that a lot of customers are going to move to our solutions.
Thanks for explaining that. Yeah, my follow-up from storage here. 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 catalyst to drive more adoption on the client SSD side?
Yeah. On the above, we say it very consistently, as the price of the flash goes down, the volumes will go up. There's no way to get around of that. Now, of course, on our side, we continue to build more advanced SSD solution to deal with the shrinking of the flash chips, because as those devices get smaller and smaller, the reliability get worse and worse. We are not a bottleneck. We are always ahead in terms of developing this technology. The other part is building the different classes. When we enter this business, we started with the high-end device, like the eight-channel device. As we go to higher volume, we need to reduce that to four channels and eventually even fewer channel devices, to see the volume to take off.
There will be time, when the lowest end will probably, the volume will be very high, but there will be more companions of the user in the, let's say, a laptop as a companion to hard disk drive to be like a hybrid storage capability.
Thanks a lot.
Thank you, Ian.
Your next question comes from the line of Mr. Daniel Amir 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, given that your former competitor had a lot of disruption in the market through the past year, has that pretty much played out at this point? 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?
Yeah. SSD still have a lot of opportunities. Most of the revenues that we have are still on the higher end, okay, because early adopters tend to be like, want to have the best performance. As we try to address the higher volume markets, and then we need to scale down, lower the cost and along with it, obviously, also lower the performance to get the cost target. There's still a lot of opportunities in the mainstream SSD. Further down the road, as I mentioned earlier, is the hybrid. There'll be huge market of opportunity for building hybrid SSD HDD combination.
In terms of the hard disk drive side, past quarters, we've seen, obviously, PCs picking up again, the market stabilizing. What's your assumption, I guess, into next year for that business? In terms of overall visibility.
Yeah. Last quarter, I mentioned about this. I believe 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. I do believe that there will be increased demands of HDD as a result.
And-
Also SSDs, that we play into it.
Yeah. To add on what Sehat has just 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. We believe our leadership in storage technology, whether or not the SSD or the hardest disk drive, and our business is very healthy. We're very pleased about this.
We do span a lot of, as you know, Daniel, we do span 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 question. Just, I just wanted to better understand the moving pieces in the mobile and wireless segment in October and 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?
Yeah.
You're talking about Q4?
Q4. It should be, what will be down is what we said.
I think it's going to be. It's up, okay, the wireless is, connectivity is more like seasonal.
Yeah.
Okay. The wireless is the temporary
Temporary.
Slowdown, softness. It's a very short-term issue.
The softness you see
Go ahead, sorry.
-in the mobile market. Sorry. The softness you see in the mobile market, do you think that's indicative of the overall market or your customers more levered to the carrier channel? Then if you could just comment on if you've seen any new competition come in to enable these lower costs down. Thanks.
I think as we said earlier, the softness is due to the faster transitions from the carrier market to the-
open market.
-the open, what do you call it, the turnkey model. That's really what we refer to, why we say it's 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. Then that's why we say Q1 will be available, the turnkey, then production will start in Q2.
We mentioned about mix of the customers, because some of our key customers used to only addressing the carrier market, now also expanding to address the online as well as retailer. All this will be helpful for us as well.
Blayne, as you probably also know, we do have weakness from Korea, from one of our largest smartphone manufacturers. That's a pretty well-documented weakness. That's one of the reasons as well.
Great. Just as you look into the designs for the first half of next calendar year, are you seeing any other suppliers entering the market, in addition to Qualcomm and yourself having primarily the share this year?
None that I know of. In LTE, pretty much, there are only three suppliers, Qualcomm, MediaTek, and us. As you know, MediaTek is a good chip solution still. The LTE is a soft modem technology, from power point of view, it's very high. 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.
Do you have a follow-up? All right. Thank you.
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 4G share to trend in 2015? Then, in particular, how do you think you guys are going to cost compare to the MediaTek one-chip solution?
Let's talk about the one chip. Our chips today is already smaller than MediaTek, even if they able to build a single chip solution, meaning that once they built the hardware modem. Remind you, today they're still using the soft modem. Assuming they have the hardware modems ready at some point in time, I don't think they're going to be any smaller than our chips. From the cost point of view, let's call it, we will be equal. The key that we need to deliver is the turnkey solution, so that we can also address the very large volume opportunity in the open market. Really, as I said earlier, this is more of a temporary advantage that they have right now on the turnkey model. In terms of performance, our performance is world-class.
Our performance in the processor, if it's not equal to the best, it's better. Our graphics is actually, we already proven in every product that we build, our graphics is better. This is the reason why we say we are very bullish. A lot of tier 1 customers, we have design wins because they know when they evaluate our products, we have leading edge solutions for the price point that they're looking for. If they want the low cost, they have the 1908. They want the high-end, high performance, they have the PXA1936, the octa-core. They can cover the both end of the spectrum of the smartphone, the LTE smartphones.
The other thing I think is also very key, even though sometimes it's a little subtle, is the security capability. For this new generation LTE platform, we have enhanced our security processor. Having secure platform and technology is very, very key also.
Okay, great. Thanks. I guess following up there, if you guys did want to hazard a guess on 2015 share, that'd be great. 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? Is this gonna be increased OpEx costs and what's the sort of timing of migration there? Thanks.
64 bit. More and more products will have 64 bits, but that's already in our plan. In terms of increased OpEx cost, it's not going to materially change. Especially also as we consolidating the product lines into fewer products. This is also the reason why over the last two 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, will translate into lower cost to us. Because the 28 nanometer also increased the cost, that's why we say flat OpEx as a result.
If I might 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. 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.
Introducing advanced products.
Introducing the most advanced products in the world. 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, Chris.
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. Certainly understand what you're saying in the short term with the turnkey solutions. Once you have those solutions in place, I mean, basically, what can Marvell do that the competition, the Qualcomms, the MediaTeks 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?
Let me give you one obvious reason, which is based on track record. Remember, several years ago, we introduced our TD-SCDMA 3G advanced technology for China Mobile. That was our foundation that we built so that last December, we were the first, ahead of all competition, introduce our 4G TD-LTE advanced technology for China Mobile. As a result, today, I don't know if you try these phones, in China, the technology there, whether or not 3G or 4G, if it's Marvell solution based, it's a lot more robust and high performance. We are very bullish, even though we're one of the youngest mobile players to enter this market. As far as the biggest consumer base in China, we absolutely have leading technology. This is a very obvious advantage.
We have an advantage. If you look on the performance side, what Weili mentioned, it's something that people do not talk much about. Our performance or modem throughput is actually higher compared to anybody else. That's proven. If you talk to the carrier, they will acknowledge that. Other advantage that we have is that we also have a lot of new technology development in building new system architecture. It's more longer term, because a lot of these things takes time to be adopted into the market. These are the areas that we're putting a lot of investments, not just for the mobile actually, it's for across the company. The technology that we build will be used across the company, but it will also benefit the mobile business.
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?
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, overall, there was no big change from our point of view.
From a content perspective, you guys are maintaining what you have in that area?
Absolutely.
Great. Thank you.
Your next question comes from the line of Mr. Mike Burton of Brean Capital. Please proceed.
Hey, thanks for taking my question. 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. Also, you mentioned you would start to see some embedded revenues in 2015. Should we assume that's more back end of the year? Is it tied to one or more flash OEMs or for a particular standard?
Are you talking about SSDs for the back end of the year, Mike, or?
I thought you mentioned embedded, so I assumed it was an eMMC that you were talking about. Is it eMMC or UFS?
That'll be probably more back-end loaded. As far as pricing, we haven't seen any big changes. If you remember, on SSDs, we're right now in our fifth generation technology. When all the stuff that you hear about Taiwanese competition, you're just hearing it, right? We have significant advantages over many of the players in the market. One of our competitors, as you know, has gone away. We feel pretty strongly about the growth opportunity for our SSD business.
In this area, the SSDs, especially when we look to LDPCs, we have very strong IP portfolio. When I say very strong, it's extremely strong IP portfolio. This is an area that we haven't seen anybody from anyone, especially from Taiwan, to be in this area. Nobody's playing into this market. Yet, if you look at the TLCs, especially in the 2D TLCs, without LDPCs, it's hopeless. It will be a huge liability issue for the flash manufacturers to deliver SSD without LDPC technology. We've been in this area for a long time, and we have a lot of proprietary technology and heavily patented technology. As we go 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.
It's the opposite. We're going to go into their sandboxes.
We definitely have intentions in going after some of the markets that some of these Taiwanese players have today.
I believe it's very hard for, especially the Taiwanese players to compete with us because our solution is very high performance, reliable. Remember, for storage, reliability is very key. Nobody wants to lose data. 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 concerned 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 Pajjuri of CLSA. Please proceed.
Hey, thanks for taking the question. This is Ryan Goodman in for Srini. Another question on storage, specifically on SSDs. You guys put out or introduced an NVMe controller in August. Just curious if you could talk about that a bit. What type of markets are you going after with that? Is it more of a high end in even enterprise play, or are you trying to push that into client markets? Then just any sense of timing and how quickly that type of product can translate to revenue?
Yeah. The NVMe products address. There are several products all the way from the high end into the entry level. The biggest opportunity, obviously, in the entry level side. This an area that is still very new. I don't know if we have announced it yet, but we just recently, that product has passed the compliance test at the UNH-IOL. It's a consortium run by, I think, the UNH-IOL. We completely passed their test on the first pass. This product could give us high volumes next year to address the very low-end entry levels SSDs to support both the SATA and PCIe.
Okay. Great. Yeah, just kind of different path. 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 two and a half million, I think, for the quarter. Then also in the 10-Q, I know you guys had put out a specific number for potential damages. It was $1.54 billion 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. The next step would be oral arguments early next year, then hopefully, we will get a decision 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.
Yeah. I don't think we should see a big increase there on that line, Ryan.
In terms of the judgment, the amount of the judgment is still the same. There is the $1.5, then there's some ongoing royalties, that hasn't changed.
Okay, thank you.
Thank you, and please proceed with closing remarks.
Thank you, Tony. I'd like to thank everyone for their time today and continuing 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. Everyone, have a great day.