Marvell Technology, Inc. (MRVL) Q4 2011 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Marvell Technology Group's Earnings Conference Call for Fiscal Fourth Quarter 2011. I'll be your coordinator for today. [Operator Instructions] I would now like to turn the presentation over to Marvell's Vice President and Corporate Controller, Mr. Brad Feller [ph]. Please proceed, sir.

Thank you, Derrick, and good afternoon. Welcome to the Marvell Technology Group Fourth Fiscal Quarter and Fiscal Year end 2011 Earnings Call. I am Brad Feller [ph], Marvell's Vice President and Corporate Controller. And with me on the call today is Dr. Sehat Sutardja, Marvell's Chairman, President and CEO; and Clyde Hosein, 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 www.marvell.com. Additionally, this call is being recorded and will be available for replay from Marvell's corporate website. Please be reminded that this call will include forward-looking statements that involve risks and uncertainties that could cause Marvell's results to differ materially from management's current expectations. The risks and uncertainties include our expectations about sales of new and existing products and general market trends, statements regarding our financial projections for the first fiscal quarter of 2012 and our expectations about long-term growth. To fully understand the risks and uncertainties that may cause results to differ from our outlook, please refer to Marvell's 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 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 stock-based compensation expense, as well as other charges related to acquisitions, restructuring, gains and other charges that are driven primarily by discreet events that management does not consider to be directly related to Marvell's core operating performance. Pursuant to Regulation G, Marvell has provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures in Marvell's fourth fiscal quarter and fiscal year end 2011 earnings press release, which has been furnished to the SEC on Form 8-K and is available on Marvell's website in the Investor Relations section at www.marvell.com. I would now like to turn the call over to Sehat.

Thank you, Brad, and good afternoon, everyone. Today, we reported fourth fiscal quarter 2011 revenues of approximately $901 million, reflecting a 6% sequential decrease from the prior quarter and a 7% increase over the same period a year ago. We also reported GAAP EPS of $0.33 per share and non-GAAP EPS of $0.40 per share. For fiscal 2011, our revenues were approximately $3.6 billion, an increase of 29% as compared to fiscal 2010. Full year GAAP EPS was $1.34, an increase of about 150% year-over-year. Non-GAAP EPS for the year increased 66% to $1.64 per share from the $0.99 per share in fiscal 2010. Full year free cash flow was $1.1 billion, up 43% versus the year ago period, representing a 30% free cash flow margin. Our profit levels and free cash flow levels in fiscal 2011 are the highest in the history of the company. Our performance over the last two years clearly demonstrates our ability to generate solid profitability and cash flow. So let me summarize our results across our end markets. First, in our networking end market, Q4 revenues were approximately 18% of our total revenues, essentially flat with the prior quarter and consistent with our earlier expectations. It appears that the inventory issues we experienced last year in this end market are largely behind us, and we should be shipping to end market from this point on. Looking forward to the next quarter, we expect revenues to be flattish sequentially in what is otherwise a seasonally low quarter. For fiscal year 2011, revenues from our networking end market were about 19% of our total revenues and up approximately 15% year-over-year. We had an excellent year in our networking end market in fiscal 2011 although the inventory correction during the year did have some impact. We expect that the adoption of our ARMADA XP processors in the networking space to accelerate in fiscal 2012. We also expect to see meaningful growth of our EPON/GPON combo product as well. Now moving to our storage end market. Q4 revenues were approximately 44% of our total revenues, declining about 2% sequentially from the prior quarter, slightly lower than our previous expectations of remaining essentially flat. It is widely understood that the PC industry growth rates in Q4 were below traditional levels, resulting in lower demand for hard disk drives. For fiscal 2011, revenues in our storage end market were approximately 46% of our total revenues and increased about 5% from the previous year. Fiscal 2011 was a challenging one for the PC and the hard drive industry. After a robust start, we experienced end demand erosion along with an inventory correction in the second quarter following which demand remained essentially flattish for the rest of the year. For the first quarter of fiscal 2012, we expect those challenges to continue. In February, consumptions of drives was low as PC manufacturers consume inventory and waited for new PC processor products to be shipped in volume. We expect consumption to pick up in March and April. The effects of this, combined with the normal seasonality in the PC industry are expected during Q1 will result in revenues from our storage end markets declining sequentially in the low- to mid-single digits. Now as you're aware, we are the established technology and market leader in the HDD SoC market. Last year, we worked closely with two new large customers on multiple new drive programs, which are starting to ramp this year, ones in full production later this year and a lot more next year. This will further expand our share in the HDD market. Leveraging our HDD leadership in the HDD market, we have been investing for quite a number of years in the SoC controllers. Our early investment in this area is beginning to yield meaningful results. We have numerous design wins in Tier 1 SoC suppliers, many of which are in production today. Our revenues in SSD in fact has doubled during the last year, and we do expect them to at least double again in the coming year. As you are aware, not everyone can afford their relatively high cost [indiscernible] of SSD solution. In order to increase the penetrations of SSD to the mass markets, we have extended our technology leadership and developed a hybrid solution, which leveraged the low cost of an HDD solution with the performance of an SSD-type solution. One of the first hybrid solutions that we introduced is a 6 gigabit per second SATA controller powered by our HyperDuo technology. This solution can control both an SSD and HDD to create a low-cost, high-capacity HDD using a small amount of SSD to boost performance. Our solution enables breakthrough SSD-like performance while allowing all data to be stored in the traditional low-cost SATA HDD. With the announcement of HyperDuo technology, we can now extend that leadership to both stand-alone, high-performance SSD drives, as well as hybrid drives and present our customers with a choice of solution depending on their needs. We expect to see result from our Hyper solution this year. And yet another opportunity for our SSD technology is to address the very large smartphone market. The requirements for this market are different than the PC market. There is required small phone [ph] factor and extremely low power consumption. We have now developed a family of solution in this market, again leveraging our technology leadership in the SSD area. This will further expand our market opportunity of our SSD technology. Now turning to our mobile and wireless end market. Q4 revenues in this end market represents approximately 34% of our overall revenues and declined about 13% sequentially from the prior quarter. The sequential decline was slightly higher than the 10% decline we had originally anticipated. During the fourth quarter, one of our cellular customers experienced a shift to more of a 2.5G EDGE-only entry-level smartphones, an area that we do not currently participate. This is a result of consumers in many developing countries demanding smartphones even though their 3G infrastructure in these countries have not yet developed. This is an interesting phenomenon and demonstrates the need for smartphones versus feature phones in these countries. This represent a significant new market opportunity for us within these emerging countries. We have devices to address these entry-level smartphone markets and plan to accelerate the deployment of this solution to our customers. Now the delay of the deployment of 3G networks in many of these countries resulted in a delay in the conversion of these products to 3G products at this one particular customer, which will affect our results in the near term. For fiscal year 2011, the revenues from our mobile and wireless end market represented approximately 31% of our overall revenues and increased over 110% year-over-year. For the first quarter of 2012, we expect revenues in this market to decline over 20%, driven by primarily seasonality and near-term cell-phone [ph] customers in the certain countries to use 2.5G-only solutions and transition to a hub inventory arrangement at this customer. Clyde will elaborate more on this in his remarks. Fiscal 2011 was a great year for us in our mobile and wireless end market. As I indicated earlier, our revenues more than doubled in fiscal 2011. This was a clear indication that our products in both cellular and wireless were very competitive. Now we introduced our new exciting products in the cellphone, in the Mobile and Wireless segments, and I'd like to expand on a few of these. Last year, we introduced the PXA920. 920 is a single-chip solution enabling mass-market availability of high-end TD smartphone markets specifically to the China market. These solutions that we provide includes a modem, application processor, management and RF devices. We are the first and only suppliers in the world with the complete high-performance TD smartphone solution for this market. As a result, as you have known and as you may have known, we'll be working with more than a dozen of customers in China for product introductions introduced over this coming year. Last week, in fact, ASUS introduced its T10 and T20 series smartphones based on our PXA920 devices and platform solution, which includes our 802.11 Wi-Fi combo Bluetooth and FM connectivity. This is just the beginning of a number of smartphones expected to be introduced this year using the 920 and the Wi-Fi combo devices. At the Mobile Congress last month, we announced the follow-on of the 920 device. The 978 [PXA978] device is a single-chip solution of TD-SCDMA but now is combined with rigorous performance and advanced 3D graphics and 1080p multimedia, as well as the traditional 3G UMTS release [indiscernible] solution to address the requirements of the rest of the world. With these new solutions, cellphone OEMs will now no longer need to design separate development platforms to accommodate different wireless standards for the rest of the world and China. And they will be able to target markets around the world saving at the same time in development cost. Now hopefully, you can see how our TD platform strategy unfolding. The 920 introduced last year initially targeted TD high-end and as well as medium-end smartphones. However, over time, as we reduce cost of the silicon, the wafers that used to build the 920, this platform will quickly transition to low-end and high-volume smartphones replacing the feature phones, which is the sweet spot market for many of the smartphones in this market. While the 978 will emerge as the new high-end TD-SCDMA phone, as well as high-end global phone. Now moving to our Wi-Fi business. We introduced recently the industry's first solutions supporting multiple input multiple output or what we normally called MIMO Wi-Fi solution. The 8797 [Avastar 88W8797] is a combo radio 802.11 except this time supporting 2x2 dual-band Wi-Fi SoC configurations, designed specifically to support high-data rates for the next-generation mobile devices. As many of you know, the first-generation tablets have been designed today using a 1x1 Wi-Fi solutions that is originally optimized for use in smartphones, which of course focuses only on small compactor, low power and low cost. Now today's tablets are used more as a primary Web-browsing device that require lots of data to be accessed, while people roam around the office or the home. The Wi-Fi solution being used in the current tablets do not provide for this capability. Using a PC-like solution will consume too much power. This constraints in the existing technologies were the reasons for us to develop the 8797 combo device. Marvell's new mobile MIMO technology alleviates this challenge by adding a second transceiver supporting a true MIMO configurations. As a result, the data rates now goes up to 300 megabit per second. The 8797 combo is intended to double the performance available on today's mobile products, enabling high-performance, high-bandwidth multimedia applications. Now the 8797 comes equipped with world's first beamforming technology. This is the technology that is currently being deployed in LTE base stations. This is a technology that will allow the Wi-Fi to have much more expansive network range compared to the traditional Wi-Fi devices without deforming capability. The 8797 also supports Bluetooth LE or what we call Bluetooth low energy, allowing communication with new breed of mobile devices including body sensors for personal health monitoring and remote controls for home automations and other applications. The 8797 is also well-suited to other products that require MIMO Wi-Fi performance such as digital televisions, home media servers, even notebook computers and set-top boxes. In the last five years, we have seen devices being successful not only because of high performance of the silicon but more importantly because of the performance of the software and applications, which plays the critical role in consumer acceptance of such devices. At Mobile World Congress, we, Marvell, introduced Kinoma, a software platform that is dedicated to dramatically transform the consumer interactions with electronic devices. Kinoma is a new foundation for creating and delivering fast, simple user experience for a wide range of devices and offers an experience and solution that is truly integrated of silicon to applications, creating new opportunities for OEMs and manufacturers. We believe Kinoma should improve the look and feel of software by presenting a single interface with user across many platforms, including TVs, tablets, cellphones; improving the percentage software acceleration, while using less memory footprints. We believe Kinoma will launch to all the customers an integrated solution to allow developers and system integrators to take advantage of the more powerful underlying hardware we offer, while concurrently lowering the cost resulting in fast adoptions of lower-end smartphones to replace the feature phones. Adding Kinoma to our platform [ph] offerings would also help us transition to a new solution provider -- Now in summary, the results of our fourth fiscal quarter brings to a close one of the most successful years for Marvell. Our customers are delighted with our new solution and innovation. Within the last fiscal year, we saw deduction of many of our technologies and we believe that trend will increase this year. Looking forward, we will further concentrate on innovation, of course, maintaining operational efficiency and cash flow generation. These are reflected in the R&D expenses necessary to be so that we are well-positioned for the future. Now I would like to turn the call over to Clyde to review our financial results for the fourth quarter and fiscal 2011, and to provide our current outlook for the first quarter of fiscal 2012.

Thank you, Sehat, and good afternoon, everyone. As Sehat mentioned, fiscal Q4 revenues came in at approximately $901 million, representing a 6% sequential decrease for fiscal Q3 2011 and an increase of 7% from the same period a year ago. Our overall revenue performance was at the lower end of our prior forecast. As Sehat indicated earlier, revenues in our mobile and wireless and stores end markets were lower than our expectations. Our non-GAAP gross margin for the fourth quarter was approximately 59.4%, essentially flat with the third quarter and about 60 basis points lower than the same period a year ago. This was at about the midpoint of our earlier projected range of 59% to 60%. Our overall operating expenses for the fourth quarter on a non-GAAP basis were approximately $269 million at the higher end of our earlier forecasted range of $260 million to $270 million. As compared to the same period a year ago, overall expenses were about 13% higher as we prepared for the launch of several new products coming in fiscal 2012. R&D expenses for the quarter were approximately $210 million, up about 6% from the last quarter and up about 12% from the same period a year ago. This was slightly higher than our forecasted range of $200 million to $205 million. For fiscal 2011, R&D expenses were also higher by about 12% year-over-year. The increase in R&D expenses was due to higher headcount and new products introduction expenses as we ramp up to support new customers and designs in the coming year. SG&A expenses for the quarter were approximately $59 million, slightly lower than our prior forecast of $60 million to $65 million, lower by about 4% sequentially and an increase of about 16% year-over-year. The SG&A expenses reduction during Q4 was primarily due to lower legal expenses. For fiscal 2011, SG&A expenses were higher by about 12% due to higher legal expenses, including litigation expenses. This resulted in non-GAAP operating margin of approximately 30%, down from the approximately 32% operating margin reported both in the prior quarter and the same period a year ago. At 30%, our operating margin continues to be in the top tier of our pay group. Net interest and other income was a benefit of approximately $10 million, higher than our prior expectations of a $3 million benefit. The improvement was due to a gain on the sale of a minority equity investment. On a non-GAAP basis, we recorded tax expenses of approximately $3 million in line with our prior forecast. Our non-GAAP net income for the fiscal fourth quarter was approximately $273 million or $0.40 per diluted share, a sequential decline of about $0.05 per share. During the same period a year ago, we were at $266 million or $0.40 per share. Shares used to compute diluted non-GAAP EPS during the fourth quarter were approximately 685 million, up from 677 million shares in the prior quarter and higher than the 672 million shares reported in the year ago period. Changes in diluted share count are primarily due to shares issued in the period from exercises of options by employees and shares purchased through the ESPP program, less shares repurchased during the quarter, along with variations in average trade-in prices in the reported period, which impacts the treasury method of computing diluted share count. Cash flow from operations for the fourth quarter was approximately $251 million as compared to $368 million reported in the third quarter and lower than the $281 million reported in the same period a year ago. Free cash flow for our fiscal fourth quarter of 2011 was $213 million, represented a 24% free cash flow margin compared to free cash flow of $338 million reported in the previous quarter of fiscal 2011 and $253 million in free cash flow reported in the year ago period. We define free cash flow as cash flow from operations less capital expenditures and purchases of IP licenses. This being our fiscal year end, I'd like to also summarize our results on a full year basis. Fiscal 2011 was a successful year for us. We ended the year with record revenues, a solid balance sheet and excellent cash flow margins. We are strategically positioned with new products and new customers begin to ramp throughout the next year. Revenue from fiscal 2011 was $3.61 billion, an increase of approximately 29% over the $2.81 billion reported for fiscal 2010. The increase is primarily due to the products in our mobile and wireless end markets, which increased over 110% year-over-year and our network end market, which increased by about 15%. Revenues in our stores end market increased by about 5%. Within the mobile and wireless end market, we experienced double-digit sequential growth for the first three quarters and ended on a sequential decline, primarily due to seasonality in the gaming systems. In our Networking segment, after a strong first half we experienced some excess inventory, which we believe worked its way through the system by year end. In storage, after a strong first quarter, the PC industry experienced some inventory digestion and ended somewhat flattish. The overall results was still impressive with company revenues increasing 29% year-over-year. On a non-GAAP basis, full year gross margins for fiscal 2011 was about 59.7% versus approximately 56.7% reported in the fiscal 2010, an improvement of about 300 basis points year-over-year. Non-GAAP operating income increased to $1.1 billion or approximately 31% of revenues over 720 [ph] basis points better than the 24% operating margin reported in fiscal 2010. Non-GAAP net income for the fiscal 2011 was $1.1 billion or $1.64 per diluted share, an improvement of 72% as compared to the $648 million or $0.99 per diluted share reported in fiscal 2010. Turning to cash flow metrics. Our free cash flow for fiscal 2011 was approximately $1.1 billion, representing a free cash flow margin of about approximately 30%, an improvement of 43% from the $756 million reported in the fiscal 2010. Let me now summarize our quarterly results on a GAAP basis. We generated GAAP net income of approximately $223 million or $0.33 per diluted share in the fourth quarter of 2011, down from the $256 million or $0.38 per share in the prior quarter and higher than the $205 million or $0.31 per share reported in the same period a year ago. The difference between our GAAP and non-GAAP results during the fourth quarter of fiscal 2011 was due to stock-based compensation expense of approximately $31 million or by $0.05 per diluted share. Amortization of intangibles represented approximately $14 million of our $0.02 per diluted share, and other non-recurrent expenses primarily restructuring and litigation settlements of approximately $5 million or less than $0.01 per diluted share. On a full year basis, we generated GAAP net income of approximately $904 million or $1.34 per diluted share, a significant improvement from the $353 million or $0.54 per diluted share in the year ago period. The major contributions to the improved GAAP profitability were higher revenues and gross profit, combined with lower equity compensation and intangible amortization expenses. Now I would like to review our balance sheet as of the end of Q4 and our fiscal year. Cash, cash equivalents and short-term investments were approximately $2.9 billion, up $255 million sequentially and up $1.1 billion from the same period a year ago. During the fourth fiscal quarter, our overall cash balance was positively impacted by $68 million as employees exercise stock options and purchased shares under our ESPP program during the quarter. In connection with our share repurchase program, through the end of February, we have purchased approximately 150 million at an average price of $18.24. We repurchased approximately 60 million in fiscal Q3, 27 million in fiscal Q4 and about 63 million through the end of February on their predetermined trading plan. Accounts receivable was approximately $459 million, down about $9 million sequentially and up $103 million as compared to the same period a year ago. DSO was 47 days, up from 45 days last quarter and 41 days a year ago. Net inventories at the end of the fourth quarter were $245 million, up from the $228 million reported in the third quarter and $242 million in the year ago period. Days of inventory were 59 days, up five days sequentially from the 54 days reported in the previous quarter and down from the 64 days in the year ago period. Accounts payable were $332 million, down $20 million sequentially and up $49 million on a year-on-year basis. Now I'd like to turn to our expectations for the first fiscal quarter of 2012. We currently project first quarter revenues in the range of $800 million to $850 million. At the midpoint of this range, this represents a decline of about 8% sequentially. By end market, at the midpoint of the range, we expect stores to decline low- to mid-single digit sequentially, networking to be essentially flat and mobile and wireless to decline over 20%. The lower revenue forecast is primarily attributable to the mobile and wireless end market. In this end market, at one of our larger customers, the end customer volumes have shifted to a lower product mix where we do not currently participate. In addition, we are transitioning to a hub inventory arrangement with this customer where we will hold more of the inventory. As is typical in this transition, we will see a quarter or so of lower revenue shipments as that customer ships through inventory on hand before continuing to purchase product from us. We are currently on this hub arrangement with many of our customers, including customers in our storage end markets. We expect this inventory transition to be complete in a quarter or so. I'd like to reiterate that the impact of volume on revenue decline in our mobile and wireless end market is not related to design losses that some might speculate. Our existing customers in the mobile and wireless end markets as is currently being experienced of many of our competitors continue to be a seasonal low point at this time of the year, and as a result, will unfortunately not offset the effects of the product mix at inventory hub arrangement. New customers in this end market, for example, customers for our new TD phones, are just beginning to ramp. We expect revenue growth in this end market to resume next quarter as we move past hub inventory issues, new customers ramp-up and other existing customers follow typical seasonal demand cycles. In the networking end market, we expect revenues in Q1 to remain flattish sequentially. This is better-than-typical seasonality where we would see sequential decline of a few percentage points. However, as you recall, we have experienced inventory issues in the last two quarters, which we believe are now behind us. In our storage end markets, we expect revenues to decline a few percentage points in the low- to mid-single digit range. We currently project non-GAAP gross margins to be in the range of 59% plus or minus 50 basis points. We currently anticipate non-GAAP operating expenses to be approximately $280 million plus or minus $5 million. We anticipate R&D expenses to be approximately $220 million and SG&A expenses of approximately $60 million. About half of the sequential increase in R&D expenses is people-related and half due to product expenses. The people-related expenses include a reset of payroll taxes typically at the beginning of the year, run rate from higher staffing at last fiscal quarter and some additional headcount to support new programs and customers. Product-related expenses are primarily from new product introduction. At the midpoint of our revenue range, this should translate to an operating margin of approximately 25% plus or minus a point. The combination of interest expense as other income together should net out to be approximately a $3 million benefit. Non-GAAP tax expense should be approximately $2 million. We currently believe that diluted share count will be approximately 682 million shares. Taken together, we currently project non-GAAP EPS to be $0.30 per share plus or minus a couple of pennies. For the balance sheet, we currently expect to generate about $120 million of free cash flow during the quarter. We anticipate our cash bonus to be about $3 billion, excluding any special items, M&A activity or share buyback. We currently expect our GAAP EPS to be lower than our non-GAAP EPS by about $0.06 per share plus or minus $0.01. About $0.05 of this is related to stock-based compensation expense. This being our year-end report, we typically review and communicate to you our thoughts about our business model. We communicated our long-term business model to you last year. This model was based on long-term compounded annual growth rate, not at any particular period. Last year, we far exceeded that model. This year, it's starting out with a challenge. Fiscal 2012 will likely be challenging for us. However, achievement of our business model should not be judged just in Q1 alone. We expect our revenues to pick up significantly as we move through the year. Sehat indicated earlier about areas we expect to see exceptional growth from great products and new and existing customer engagements. Our confidence in our long-term business model is not affected by near-term and seasonal dynamics. We encourage you to view the long-term business model in the same way. As we reviewed our business model, we reflected on our ability to generate significant free cash flow. Last year, we generated $1.1 billion in free cash flow or 30% of revenues and ending with just under $3 billion in net cash. We also take into consideration the feedback from our investors and others who follow the company to share some of that cash with our valued shareholders. In doing so, our board contemplated these inputs and approved that increase in the share repurchase program from $500 million to $1 billion. This will still leave us with sufficient resources to allow us to continue to invest organically and potentially acquisitively. We will continue to evaluate our cash position and our options to return to cash to investors, and we'll communicate this to you periodically. With that, I would like to turn the call over to our operator to begin the Q&A portion of our call. Derrick?

[Operator Instructions] And the first question will come from the line of Sukhi Nagesh from Deutsche Bank.

Clyde or Sehat, the question is on mobile. Obviously, the outlook there is a lot weaker than we anticipated. Maybe you can help us understand if your customer, largest customer there did not move to the VMI, what would've been the positive impact to your Wireless business for the quarter there? And then again, you mentioned that the mobile and wireless will potentially start to grow again. Would you like, or can you maybe help us understand how we should be thinking about it beyond the April quarter here?

It's difficult to differentiate the difference between the hub and the shift to 2.5G-only products because they're all somewhat intermingled. We did iterate on the call that we expect that end market to show growth in the next quarter, and I think we also said that this should last maybe a quarter or so at this particular customer. So I think we expect decent growth in the next quarter, but consistent with our practice, we don't want to provide any specifics.

And then just to follow up on the operating expense front, you've traditionally talked about how for every $3 of revenues, you'd be spending a $1 on OpEx. How should we be looking at that moving forward, especially in light of the OpEx increase for the current quarter?

Fair question. I've always reminded folks that was to be measured not on a quarterly basis but an annual basis. And I think if you look at fiscal '11, for example, our revenues increased 29%, and I think other expenses decreased far less than that ratio. So I think we'll accomplish that. Sehat has been very clear about investment. We invested for the long term. These are near-term effects and it's not possible to be dial in OpEx growth or decline consistent with the revenues. I think if you do that, that would be a recipe for disaster for longer-term growth. So I don't think you want to manage that on a quarter-by-quarter basis in that respect. It's not that quite a variable model. Having said that, the increases that we are looking at right now geared to the products that Sehat indicated in his prepared remarks earlier and we do these stuff as near term. It's consistent with the answer I gave you earlier about we expect revenue growth in Q2. So it's not like we can defer engineering team, and field and sales team it takes to bring a lot of these things to market. For example, the TD phones are just beginning. So we do need to invest in that area.

Significant investment?

Yes. We are very comfortable with the long-term metrics that we've provided.

Many of the products that we're building especially to address these smartphones markets requires a lot of significant investments ahead of the revenue. So let me give an example, the TD smartphones itself alone requires significant investment, requiring lots and lots of human capital, as well as technology investments. And we start seeing that, the result of that investments, as I said earlier, are of the more in the dozens of design wins. They're for people, they're building TD smartphones. And by the way, this is a high-end as well as medium smartphones initially. ASUS just happened to be the first one to be introducing, but you'll see more and more of the introduction in the upcoming quarter and two. So every one of this customer requires huge amount of supports. The beauty is, all the supports and all the solutions come from us. We provide all the protocol specs, the RF, the PMICs, the audios, the Wi-Fi combo, all the softwares needed to make things happen, the porting, the Androids software and now with the Kinoma platforms supporting the Kinoma platforms to those solutions, so that our customers will have less headaches to deploy these phones to the market. So again, as I said earlier, as we'd be able to reduce the cost on these devices within the coming year, we will be able to reduce these costs so that these devices, same devices, can go into to address the feature phones. That's for next year. And then we'll move along to the 978 device to address the high-end markets for the next year.

Your next question comes from the line of Sanjay Devgan from Morgan Stanley.

I was just hoping you could touch on Hitachi and how the ramp there has progressed. How we should kind of view that in terms of why we're not seeing a bigger contribution? And if you can also talk about the other major customer coming on, on the HD side kind of timing of the ramp and how we should you kind of view that progression?

Sure. The HD/SD Hitachi is one of the two new large customers that I mentioned in my remarks that we've been working on for the last year. So we've been working with them on delivering multiple, multiple means more than two new, devices last year. I don't have it with me whether it's three or four new silicons for them, but it's definitely more than two devices to address multiple new programs, and these are for a single high device as well as multiple -- single platform devices as well as multiple platform devices to address full range arrange of storage capacities, so including 7-millimeter hard drives as well as the traditional 9-millimeter hard drives from that 9.5-millimeter drives. So we are really excited actually about the work that we have done with them. So a similar thing is we added Seagate, so we're also been looking very hard to address this. I cannot give you too much color into it that yet because some of these devices are just about to be introducing to the market. But as far as Hitachi, they've already introduced some devices into the market. You can see that some of the drives and they are ramping up and thing as usual. As we said earlier -- as we have said for many, many years, this thing takes some times. It might take several quarters, it might take three quarters, it might take four quarters to fully ramp into full production as this customer replace -- fully ramp up and replace the traditional lower end, lower-capacity devices. So the good thing is, as usual, the drive capacity will increase and we are on the new capacity generations. So as the old capacity generations ramp down, okay, the only solutions that came from us, so that's the beauty of it. So the RAM is just coming.

Your next question comes from the line of Nicholas Aberle from Janney Capital Markets.

Just back on the mobile wireless subject, you couldn't really break down the shortfall relative to the mix and what's going on in the hub. Could you quantify maybe what portion of the business is being impacted by seasonality versus what's going on at the specific customer?

That's kind like the same thing, Nick. There's a lot of moving parts in there. It's with a minimum amount in our Q4 results, obviously, a big amount this quarter, it's obviously difficult to quantify seasonality versus hub.

They intermingle.

Yes, they're connected. They're intermingled and connected. But I would reiterate we do expect this end market to grow and that customer to grow.

So how do we think about the transition on the mix side to 2.5G? Is that something that's going to be permanent now or do you look for it to switch back as we move through the balance of the year? How should we be thinking about that?

Okay, the 2.5G is one that we did not anticipate early on. In fact, many parts of the world are still using 2.5Gs and yet while traditionally, they were only being served with feature phones, more and more of these parts of the world they are demanding smartphones. So this is an area that we are decided now to fully address to provide solution for these markets. Now we do have solutions, okay? We are now just pushing it to the market, and we expect to participate into this market in the next couple of quarters or so as the devices are qualified to the market. So I do expect this. It is a short-term issue to us.

And then on the hard disk drive side, as you guys said, I mean, it's been a couple of tough quarters, four tough quarters in a row. Do you think it's more, as demand waned because of the economic conditions or do you think it's secular trend within the drive space that's been kind of holding back the growth on the storage side?

On the storage, the unit growth actually -- when we report the numbers, we report the dollars. So within that reported dollars numbers, actually, the growth of the unit actually is bigger than the dollar. So really, there's still quite a bit of growth in that market, not as much as what we used to see in the past. So a part of it is related to, I guess, the economic condition in the world. Still many parts of the world are still under distress, so the consumption of PC may be somewhat muted. Part of it is, a small percent of this could be related to some people buying smartphones or buying a little bit of tablets, so there are some cost correlation. And part of it's also because at a certain small percentage of the market people are starting to use SSD, which we do participate as I mentioned earlier in my remarks. We have numerous design wins for our SSD controllers for the Tier 1 markets. And I can only imagine that these types go into high-end laptops, which obviously, will take some of the markets in the HDD. But this is an area that we'd participate, so we don't really care one way or the other which way it goes.

Nick, if I may add to what Sehat said. I understand, but I think we all follow the PC space a year ago as we discussed earlier in the call there was inventory correction went to end market fairly quickly. There's been product transitions that the PC processor level. Sehat alluded to that earlier. So there's a lot of moving parts here. I think all of these things are contributed to the current environment. I think what you see from us is probably better than what you might -- one might expect to see, but part of that is the ramp-up in new customers, as well as helping us out. So I think there's a number of things that's happened over the last three or four quarters at PCs. I do think with new processor technology coming, inventory should clear out, and I think we'll be get to more stable environment, albeit these assets, probably more subdued than in the past but I think everyone expect that now.

Maybe I can add a little bit more color to this. Specifically, with this quarter, with the delay of the shipment of this PC platform, there's a certain destruction in the supply chain. Many of the PCs are built-in or laptops built in Asia and ship over the shipping lanes. And these are traditionally, this is what's done to reduce cost of the transportation. But because of the delay in the shipments of the new PC processor, the supply chain will get disrupted for about maybe two weeks, maybe two and a half weeks or so. And therefore, specifically this quarter, our customer indicating that sometimes these two weeks or two and a half weeks of supply chain disruption does create an issue with the Storage business temporarily.

Your next question comes from line of Harlan Sur from JPMorgan. Harlan Sur - JP Morgan Chase & Co: Clyde, you mentioned the accelerating revenues in your total business beyond the April quarter, and I know that you also mentioned wireless being up in the July quarter. You should have visibility now. I mean, is your order and sort of backlog visibility already giving you a high level of confidence about growth in the total business for the July quarter?

No, it's less orders because people don't give orders. There's some, but if you look at -- when you analyze the reasons why we declined, a fair amount of that was seasonality. So for example, I think it's well documented we have north of 70% share of the gaming given systems while typically build up in our Q2 and Q3 and then drain that out for the first half. So that's a part of it. Second part of it and I think this is a non-trivial part is to ramp-up some of these new devices. Sehat alluded to and it's public now that ASUS has launched a couple of devices. We indicated earlier that there are number of those devices that should come in the next few months. And so new product introduction, which we have a fair amount of clarity will create growth is probably the other area that gives us that confidence. Some of the customers are well known to you. Once they go public, we can talk about it. Some we have to keep quiet until they go public. So it's a combination of seasonality which has caused -- subdued early areas and the new products related to some of those customers, as well as new areas and new customers ramping up in the next term that gives us that confidence.

I do want to add some. I've personally seen many, many of these handsets of myself on my hands playing around this new TD handsets for the China market. So I do feel comfortable that these products will shift in the next quarter or so as the devices are being qualified by the carrier. So there's a good thing if devices are there, so they're just the qualification stage needs to be completed and then the order will automatically come. And because of this, we need to be prepare for building the inventory to anticipate for this ramp. Harlan Sur - JP Morgan Chase & Co: And then my follow-up question is the team has had, obviously, a very good relationship with RIM for many years now. I'm just trying to figure out what was the rationale for the transition to a hub base model now. Is it just simply because Marvell is just the much larger partner into RIM? I mean, is it that simple? And then on that same front, just want to make sure that on the 3G side, that you guys still believe that you retain 70% market share of their non-CDMA product lines now and also going forward?

So we said before, this is not a design win or design loss issue, so the things we've said in the past continued to play out. In terms of the timing, yes, we are a much bigger player with them. I think our revenues last year and our performance last year shows that. It's been discussed for a while. I think what creates the timing is given the mix right now, we decided might as well get it over with and not have to deal with that. I think at some point, we realized that was inevitable to go there. We might as well deal with early, put behind us and move on and deal with other issues. And so that probably more influenced the timing more than anything else.

Your next question comes from the line of Craig Berger from FBR Capital Markets. Craig Berger - FBR Capital Markets & Co.: I guess the big picture question is if I look at your revenues now versus where they were, say, a few years ago, there really hasn't been that much growth and that's severely underperformed versus peers. And I'm just wondering what needs to change? Is there something broken? Is there something broken within the processes with the investment areas? Maybe you can help me understand the big picture about why growth is going to proceed now where it hasn't in the past.

Craig, I understand that people say that, but the mix of our products over the last few years is much different. I think early on this call and a number of people have written about some of the issues related around the PC market. And of course, having 60% share of the drive business we are subject to that and we are subject. So I think when you look at it, you got to look at the mix of the products. As Sehat and both I indicated earlier, our Networking business last year grew 15%. We certainly expect that to grow by at least that much, maybe a little bit more this year, and that continues to grow. Our Wireless business grew over 111% last year. We expect that to have double-digit growth again this year. So I think when you analyze it, it's a very good question for people who listen to this call is to understand we are shifting our business away from PC-based to non-PC-based, and those businesses are very successful. The last thing I would add is don't judge this by just one or two quarters, and we're talking about Q4 and Q1 results. I think it's unfair to judge those by those results. But if you look at the product mix and you look at the product lineup we've got, I think we've transformed this company substantially, and I think we will grow in all the right places. We dominate in one area, i.e., PCs that's been somewhat subdued, you're going to have to live through that. I think we've done that very well and generated a lot of profitability and cash flow through that transition. Craig Berger - FBR Capital Markets & Co.: So then as a follow-up, maybe a couple of programs we've talked about before where some of the China Mobile OPhone programs and also Seagate have to start ramping on the HDD side. Is there any way you can help us quantify those opportunities in this calendar year towards scaling to that 20% to 25% annual growth target you guys are shooting for?

On the China Mobile, of course, we have an idea. The problem with new product introductions in a new country with smartphones, it's difficult to predict and then people get latched onto that and you get measured against that. We have, I think, Sehat indicated one of a dozen customers that are on for this TD. We're very excited by it. Whether it's single-digit millions or double-digit millions, it's hard to say. But it's certainly finish [ph] a plus million have been throwing around for this opportunity, and we have the lion's share of that. Whether that's going to play out or not, there's a lot of moving parts to that. Same thing is with our drive customers. They have started ramping. The things we control is the products. We discussed earlier about a number of products in there. We are confident that in months, if not a quarter or so, we will serve all areas of the drive market, and that's very confident we will do that. But the recent piece of that ramp front is difficult to predict.

I guess instead giving you what the unit numbers that is possible with the OPhone or simply any other OS for the TD markets. Let me give you a number, the pricing of those phones. Last year, when they introduced the first-generation OPhones, the first-generation OPhones were selling for $300, $400, even $500, U.S. dollars. I mean, not Chinese dollars, price point, and you can see there that kind of price points, the volumes, it will be limited. In contrast, today, the 920 devices are targeted for TD smartphones, and these are high-end smartphones targeted for prices the range of $100 to $150 smartphones. So now, we just need to figure out. The time will tell what will be the difference in the volumes of the TD smartphones when it's priced between $100 to $150 versus when it was priced at $300 to $500. Craig Berger - FBR Capital Markets & Co.: Can I just ask one more? You've been talking about these Seagate wins and some of those China Mobile OPhone stuff for almost three years now. And I guess my question is, did you start talking about it too early? As the programs delayed, technology delayed, what has changed versus expectations back in fall 2008 on those programs?

Let me address the China phone. You could argue whether we talked about it earlier or not, that's a fair question. But there are some challenges. The underlying Android platforms had gone to 11 generations that caused people to delay with any new product and any new technology, you always have issues. TD is relatively new certainly in smartphones. So arguably, there were delays, but I think that we've got to look at the positive side. We have one customer announce it last Friday. That's the beginning of it. This stuff is real. This is not fiction in front of us, so this is not a promise of thing. This is real, and we think this is near term, and we can see on this call it has started. And that's the meaningful difference here, Craig.

Your next question comes from Uche Orji from UBS.

Can I just switch gears and ask you about Networking. And within your flattish guidance, can you talk about trends within the subsegments, carriers, enterprise, small and mid-sized businesses, what are you seeing there that were of demand? Which areas are stronger? Which areas are weaker?

We play mostly in enterprise, Uche, so our presence at carriers and within small businesses, it's hard to say, but I'd lean our comments more on enterprise. It's hard to differentiate whether small business or not, at least I couldn't do it here for you in the call. So I would characterize the stuff as more enterprise. I think I said earlier that -- but in the middle of last year, there where some well-documented inventory issues I believe. We said then that it will take about two quarters, and it's taken two quarters. And now we're seeing that behind us and it's a little better than seasonal.

I also know you did have some business with data centers, and the reason I ask is because that's a very strong comments of Internet traffic driving strength in data centers. Are you seeing the same thing within your Networking business?

Yes, I think that's probably where -- whether it's cloud-based or data center-based, I think that's where you will see some of the existing stuff. But we indicated -- Sehat indicated earlier that we expect next year our GPON/EPON combo devices to start taking off. That's of course related to slightly different part of the business. But the existing business today, I think, you'd see the data center spending probably increase in part because of the cloud phenomenon.

So there are people building new base stations as they are starting to move to 4Gs, they need much higher throughputs in the backbone. So those are being built using higher port coms, 10 gigabits backbones.

A different question. SSDs and hybrid products that you talked extensively about this, Sehat. When should we start to see this actually gets shipped and when should we think it will be material contribution to revenues both for Marvell and possibly for the industry? And can you comment as to what your market share is in SSDs and also if you can tell us what the relative contribution to both pricing and margins compared to hard disk drives?

Sure, as I mentioned earlier that last year, our SSD revenue doubled. And I also mentioned that this coming year, it will also double at least, at least also double. And this is just for the products that we built, okay, for the stand-alone, high-performance SSD Controller. So this does not include the devices that I also mentioned earlier about the hybrids. The hybrids is a new device that we just recently introduced because we started to realize that at the price point of this SSD controller, only a small percentage of the market can afford to have SSD. Here, everybody wants to have their laptops to have SSD if it comes for the same price for a drive, a regular drive, but it's not going to happen in the next five to 10 years. So instead of waiting to that for happen, we proactively look into what we can do to make these laptops to have essentially similar performance of an SSD, maybe a little bit less by giving them smaller capacity and use a hybrid solution, combine it with the traditional HDD and resulting in a tenth of the cost or 1/8 of the cost of fewer SSD. We're talking about not half or like 1/8 of the cost. So this is like a major cost saving. But as anything, technology is not so easy to deploy. So we're looking with our customer to deploy some of this solution into the market. So we expect this to be more -- the hybrid to come a little bit later. So in the meantime, the traditional SSD, there's still a lot of headroom for the market to grow as some of the flash, the multi-bit, the 2-bit, as well as the 3-bit cells are being introduced into the market. This will somewhat reduce also the 2x nanometer flash starting to come out in the market. It somewhat reduced the cost a little bit, but it's not enough to create a huge volume increase. So that's why we're forecasting like double or more than double not 10x. If you look at the volume, the volume is still quite low. So the prices, it could be 2x, it could be 10x increase, but it's not going to happen anytime soon.

One last question will come from Chris Caso from Susquehanna Financial Group.

If I can just come back to the handset again and just to understand correctly. I know you've tried to answer it a couple of times, but is it correct to say that at least some part of that down 20% that you're seeing this quarter comes back to you over the next two quarters or so, but I guess you guys are saying you don't know the magnitude of that how much that comes back? Is it the right way to think of it going forward?

Correct, yes.

And I guess what depends on how much of that comes back it depends upon the mix between 3G, 2.5G on the product line going forward?

Less on that. There are also new programs going on, on 3G. The newer 3G phones are also being built at lower cost, so they will also address some of these emerging markets. Now of course, as I mentioned earlier, we also like to participate on the 2.5G-only smartphone markets because some of these markets where the infrastructure is still completely still on the 2.5G networks, yes, they want to have -- consumers still wants to have smartphones not just entry-level smartphones, also advanced smartphones, we also want to participate in that. So we have solution for that, and that will probably take like two quarters or so to materialize.

I'd 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.