Sukhi Nagesh - Vice President of Investor Relations Sehat Sutardja - Co-Founder, Executive Chairman, Chief Executive Officer, President, Chief Executive Officer of Marvell Semiconductor Inc, President of Marvell Semiconductor Inc and Director of Marvell Semiconductor Inc Brad Feller - Interim Chief Financial Officer, Vice President and Corporate Controller

Harlan Sur - JP Morgan Chase & Co, Research Division Glen Yeung - Citigroup Inc, Research Division Srini Pajjuri - Credit Agricole Securities (USA) Inc., Research Division John W. Pitzer - Crédit Suisse AG, Research Division Quinn Bolton - Needham & Company, LLC, Research Division Arnab K. Chanda - Avian Securities, LLC, Research Division Craig A. Ellis - Caris & Company, Inc., Research Division Romit J. Shah - Nomura Securities Co. Ltd., Research Division Blayne Curtis - Barclays Capital, Research Division Doug Freedman - RBC Capital Markets, LLC, Research Division Mark Lipacis - Jefferies & Company, Inc., Research Division Aalok K. Shah - D.A. Davidson & Co., Research Division

Good day, ladies and gentlemen, and welcome to the Third Quarter 2013 Marvell Technology Group Earnings Conference Call. My name is Keith, and I'll be your operator for today. [Operator Instructions] As a reminder, today's conference is being recorded for replay purposes. And with that, I'd now like to turn the conference over to your host for today, Mr. Sukhi Nagesh, VP of Investor Relations. Please go ahead, sir.

Thank you, Keith, and good afternoon, everyone. Welcome to Marvell Technology Group's Third Quarter Fiscal 2013 Earnings Call. I'm Sukhi Nagesh, Vice President of Investor Relations. And with me on the call today are Sehat Sutardja, Marvell's Chairman and CEO; and Brad Feller, Marvell's Corporate Controller and Interim 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 will also be posting a slide deck summarizing 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 product and market strategy; statements about our market acceptance of our products; statements about general trends in the end markets we serve and future growth opportunities; statements about market share; and statements regarding our financial outlook for the fourth quarter of fiscal 2013. To fully understand the risks and uncertainties that may cause the results to differ from our expectations and outlook, please refer to today's earnings release, our latest quarterly report on Form 10-Q and subsequent SEC filings for a detailed description of our business and associated risks. Please be reminded that all of our statements are made as of today, and Marvell undertakes no obligation to revise or update publicly any forward-looking statements. During our call today, we will make reference to certain non-GAAP financial measures, which exclude the effect of stock-based compensation, amortization of acquired intangible assets, acquisition-related costs, restructuring costs and certain onetime 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 are providing reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures in our third fiscal quarter 2013 earnings press release, which has been furnished to the SEC on our Form 8-K and is also available on our website in the Investor Relations section. With that, I would now like to turn the call over to Sehat.

Thanks, Sukhi, and good afternoon, everyone. Today, we reported third quarter revenues of approximately $781 million, reflecting a decrease of 4% sequentially. This was in line with our revised outlook provided in mid-October, with the softer revenue mainly due to the lower HDD demand. We continue to be profitable, with third quarter non-GAAP gross margin of 52.3%, operating margin of 14% and earnings per share of $0.20. We also continue to return cash to our shareholders as we repurchased about $203 million or roughly 23 million shares and paid $33 million in dividends during the quarter. Typically at this point, I'll provide some financial information for each of our end markets. However, we have now made some changes, and we'll post the comprehensive slide deck on our website that provides both our results and outlook. I will instead focus my commentary on our end market and product strategies. We believe this format will be more beneficial and especially given the near-term revenue headwinds. Brad will then provide financial color on our end markets after my prepared remarks. First, I want to reiterate that Marvell has always been, and will always be, a strong technology driven company focusing on large growth markets. In the decade following the inception of the company, Marvell targeted 2 of the largest growth opportunities at that time, mainly storage and networking. Our relentless focus on advanced technologies has directly translated to our current #1 position in storage and #2 position in networking. Today, it is clear that the biggest volume and growth opportunity is the mobile and wireless end market. To give some perspective, the dollar opportunities for semiconductors in the mobile market is at least an order of magnitude bigger than, say, the storage market due to a combination of significantly larger volumes and higher…

Thank you, Sehat, and good afternoon, everyone. As Sehat mentioned, we reported revenues for the third quarter of fiscal 2013 of $781 million, representing a 4% sequential decrease. The shortfall in Q3 from our initial expectations was mostly due to reduced demand from our HDD customers and slightly lower demand in wireless connectivity for the gaming market. In storage, our overall revenues declined 3% sequentially and represented approximately 47% of total sales. Despite a 10% decline in the HD TAM in Q3, our HD revenue declined by only 5% sequentially. Continued share gains for our 500 gigabyte per platter technology drove our relative outperformance in HDDs during Q3. In addition, consistent with our expectations going into the quarter, our SSD revenue increased over 25% sequentially from the strength of new customer ramps. In networking, our revenue was down 1% sequentially and represented approximately 23% of total sales. We had double-digit growth in enterprise switches, offset by an inventory correction at infrastructure-related customers. Our mobile and wireless end market declined 10% sequentially and represented approximately 25% of overall sales. As Sehat mentioned earlier, in wireless connectivity, we saw an exciting new tablet PC device introduced into the market, incorporating our 2x2 MIMO solution. Growth related to the launch of this new product was offset by lower-than-anticipated demand for our gaming solutions and an inventory correction for enterprise access points. Although our mobile business declined sequentially as expected, we are gaining good traction for our solutions based on our new unified platform. We expect to start to see revenues in this area in the first half of next year. Our non-GAAP gross margin for the third quarter was 52.3%, which was below our initial projections, mainly due to the shortfall in revenue and mix of products sold. Overall operating expenses for the…

[Operator Instructions] Your first question is from the line of Harlan Sur with JPMorgan. Harlan Sur - JP Morgan Chase & Co, Research Division: On your mobile and wireless segments, Sehat, you talked about your unified platform and some of the early design wins. And it sounds like first revenues at the beginning of next year, your embedded connectivity seems to be doing well, as well. I know visibility is limited for the team in this environment, but can you just give us a sense of when you expect revenues in your total mobile and wireless segments to start to inflect higher and grow sustainably as your strategy starts to kind of come together? Is it Q2 of next year? Is it second half of next year? Does the team need to wait until calendar 2014? Any color here would be helpful.

Yes, I will expect to see our revenue to start moving up in the first half of next year. And as I said earlier, that we are putting self-imposed target on ourselves that by the end of fiscal -- I mean not fiscal, calendar 2013, our target is to achieve 10% of the W-CDMA markets. So, okay, if we achieve that, okay, that will be like a significant milestone for the company.

So, Harlan, just on that point, we're not predicting to any particular quarter. But like we said, I think we should start to see revenue inflection in the first half. The end of first quarter or early second quarter are hard to predict at this point. Harlan Sur - JP Morgan Chase & Co, Research Division: That makes sense. Okay. And then, obviously, the team's been aggressive with the stock buyback plan up to this point. I think exiting Q3, you've still got above $400 million left on the repurchase plan. I know there's been some concern that the team may pull back on the buyback until either a new CFO is found or pulled back just given the tough macro environment. So I guess the question is, is the team going to continue to be aggressive on the buyback near term with the stock at current levels, and is the team thinking about more aggressive ways to return cash to shareholders?

Yes, so, Harlan, we'll -- we are absolutely committed to continuing the buyback at the current levels and potentially higher, right. We think the stock is at a very low point right now, and we will be very aggressive in that respect.

Your next question is from the line of Glen Yeung with Citigroup.

My questions are largely around margins. And I guess the first one is gross margin's now down I think 8 quarters in a row, and I recognize that you're guiding up for the out quarter. But just your sense on how you're going to kind of stem the flow with the gross margin decline and what you think the new targets for gross margin might be.

Yes. So I think we've had a good track record in gross margins. And as you pointed out, it has declined a bit in the last several quarters. But we will maintain margin, gross margins from a long-term perspective in the 50% to 55% range. Obviously, as we become more and more successful in the mobile and consumer areas of the business, it may drift towards the low end of that range, but we are very committed to that range. And we're focused on bringing in the revenues to drive operating margin growth at the end of the day.

So, Glen, if you look at the history of the company, there has been maybe a few pockets where we've actually dropped below 50%. I don't think we're ever going to get there. So our overall target range should be between 50% and 55%. And as Brad mentioned, our target operating margin goals are 20% or better. And so our goal really is to drive top line growth and operating margin leverage.

Okay, actually just on that note then, over that same time that gross margins have slid, R&D has gone from 23% of sales to 34%. And it sounds like you still want to be aggressive in the overall handset market. I wonder where we are I guess on 2 fronts. One, just on the absolute level of R&D, again you're guiding it down for the quarter but you're guiding it from the fourth highest level of R&D in the last 8 years. So where are we sort of in that overall trend for R&D? And specifically in mobile and wireless, are we kind of through the hump there in spending or is there still more in front of us?

Yes, the reason the R&D has to go up, okay, over the last couple of years is because the investment of going into the mobile and wireless is -- fundamentally is significantly higher than any other businesses that we ever get into. So this is the main reason now. The fact that, okay, we have a short-term headwind did not help that percentage. It was not because of the -- what I am sure I believe is a short-term issue that we are facing, the percentage is still a very reasonable percentage. Now secondarily, we also need to invest in other areas, okay. I have mentioned we've been aggressive in investing SSD and hybrid technology for storage. Because we do believe the market for storage will continue to grow, and as the leader in this business, we must invest in new technology to drive our future growth. But that's a small secondary part. Now having said that, okay, we are committed to -- okay, now we have invested quite a bit, okay, in those areas. We are committed to maintain our expenses for next year overall.

Yes, yes. So that we'll manage the overall number, make sure that it is flat for the year, investing in some new things and keeping tight controls on some of the discretionary areas.

Your next question is from the line of Srini Pajjuri with CLSA securities. Srini Pajjuri - Credit Agricole Securities (USA) Inc., Research Division: I have a short-term question and a longer-term question. Looking out to the next quarter, you're guiding your wireless to be down about 30%. I'm just wondering, is it all related to the Wi-Fi business being weak? And also, if you could give any -- a bit more color on what's happening on the mobile side and what's TD doing and what's W-CDMA doing?

Yes. So if you look at the overall number, it's roughly half wireless connectivity, half mobile. We've talked about the market transitions that we're experiencing in the TD-SCDMA market, those continued, those have played out as we expected. As Sehat mentioned, we're starting to get good traction with the new platform; that includes TD and W-CDMA.

It's really -- just a little bit of follow-up there, right. If you look at traditionally our connectivity at least in the gaming platform side, it usually drops off in excess of 50% in the fourth quarter sequentially; if you go back a few years, that's typically the norm. So we're not seeing anything untoward at least in the connectivity side this year around. And that's maybe a little bit more compounded this year by the product transitions we're having on the mobile side. Srini Pajjuri - Credit Agricole Securities (USA) Inc., Research Division: Okay, fair enough. And then, Sehat, you're setting a pretty aggressive target for the W-CDMA market share. And this is not a new market for you, and obviously, you've been in this market for several years. And I'm just curious as to what gives you that confidence that you'll be able to achieve the 10% market share in 2013, which you didn't achieve in the past?

Well, yes, I did mention in the past like in the last call that one of the mistake that we made in the past was that we had 2 platforms. We have one platform for W-CDMA, and we have another platform for TD-SCDMA. That create distractions in our team, and also it's as well our customers in terms of, okay, building handsets of both the TD-SCDMA and W-CDMA. We corrected that mistake with the single platforms. Now, with these single platforms, okay, our customers will be able to build handsets, okay, with TD or W-CDMA or vice versa, whichever they can -- they can start with the TD first, and they can go W-CDMA with very minor efforts. So this is the reason why, okay, we feel very, very comfortable and very -- we are very optimistic on our prospect in W-CDMA because now we have a lot more customers to work with on the W-CDMA side. Now, on the technology side -- that's on the business side. On the technology side, our W-CDMA was proven for years. But those were mainly for the older platform. So now we're just -- okay, so the -- we are putting the proven modem technology into the TD platforms to simplify, to ease the transition for our customers to switch their business, and to do business in W-CDMA to us. Srini Pajjuri - Credit Agricole Securities (USA) Inc., Research Division: And if I could just follow up on that, and as we look out to the next few quarters, are you basically counting on the white box market to drive your market share or is it going to be Tier 1 customers? And also, how should we think about the margins as you gain share in wireless in terms of both gross margin as well as operating expenses?

Yes, yes. So we targeted both. We are targeting both the OEMs and the white box market. The white box market is becoming increasingly important to address. As, in fact, if you're asking for the white box market, as you know, okay, they're representing 30% and maybe more next year of the cellphone volumes. So this single platform allows us also to focus on one software delivery, one turnkey delivery solution to the white box makers, while at the same time be able to serve the traditional OEMs that wants to write their own applications. And most of -- by the way, most of the OEMs also we still use the same portable specs from us as well. So from the expenses, the second question on the expenses. By going to the single platform, we actually -- now we should be able to maintain our expense, okay. It will not be otherwise, okay, if we have decided to go to stay with the 2 platforms that we used to have. So this will be good, okay, for us moving forward.

Your next question's from the line of John Pitzer way Crédit Suisse. John W. Pitzer - Crédit Suisse AG, Research Division: I guess quickly, guys, if you look at the guidance for storage in the January quarter, can you help me understand what is your view of the world? What's the TAM assumption there? Is there still market share gains to be had in the January quarter? And I guess, if you could help me quantify what SSDs are now as a percent of that business and do you expect that to stay on a growth path in January?

Sure, John. Yes, so our assumption for storage, at least, is predicated on a flat HD TAM like most of our customers have indicated, right. But we also said -- I think if you listen to what many of our HDD customers have talked about on their calls, they've talked about inventory on their books going up and inventory at their end customers being high as well. So there is some aspect of inventory reduction, I think, on the drive side in the current quarter. So it's going to be, from our perspective, we said our storage business would be flat or down slightly; HDDs, at least, would be flat or down slightly. On SSDs, I think we mentioned -- Brad mentioned here shortly that we should do better than the competition. You know what the competition did last quarter, so I think we're seeing some of our customers in that space actually taking some share. John W. Pitzer - Crédit Suisse AG, Research Division: And then on the SSD front?

Yes, that's what I said.

That was the SSD comment, the last one. John W. Pitzer - Crédit Suisse AG, Research Division: Okay, sorry, I apologize. And then, guys, as a follow-up then on the networking side, you'd commented that in the October quarter, you saw an inventory adjustment with some of your infrastructure players. A little bit more detail there. And in general, networking has been a good relative story for you guys, but it hasn't necessarily been the growth engine for you or, quite frankly, any chip companies in a while. And I'm just kind of curious, Sehat, as you think about calendar year '13 and beyond, what kind of growth do you expect out of this business and what are the bottoms-up drivers?

Yes. The -- as in the prepared comments, okay, we've made, okay, the -- we see the growth opportunities will be building out -- the build-out of the networks to serve the smartphone users and also as LTE being also deployed, the networks has to be built out as well. So in those areas, okay, some of the important technologies that we need to provide are device, okay, like network processors for the base stations, as well as the switches again for the infrastructures. So I will guess, okay, that the business probably can grow around 8% to maybe 10% over the next year. John W. Pitzer - Crédit Suisse AG, Research Division: Okay. And then just the infrastructure inventory correction in the October quarter, any more color you can give us on that?

Sure. I think we have a couple of different product areas in the infrastructure side, John. I think you probably know we have a very nice and growing network processor business that targets certain aspects of the access market. We also have a very solid PON business. We have seen very strong traction in PON over the last 5 quarters in a row, so there's a little bit of a pause I think we saw in the prior -- in the last quarter. But we're seeing a resumption of growth this quarter.

Your next question is from the line of Quinn Bolton with Needham & Company. Quinn Bolton - Needham & Company, LLC, Research Division: Just wanted to follow up on John's question; just really trying to look at the growth drivers as we look into calendar '13. You went over a number of potential opportunities, the unified platform, the SSDs, the hyperdrives, the opportunity to get ARM processors into some of the infrastructure networking clients. But I mean if you look at fiscal '14 or calendar '13, can you sort of rank order the top 2 or 3 growth drivers you see for next year?

Yes, for us, definitely those will be for the mobile and wireless, especially toward the second half of the year. This is by far -- okay, mobile and wireless are by far the larger market opportunity for anyone to address. So, okay, as -- okay, the -- as the concern, okay, that people have about us is because of these short-term temporary headwinds that we are facing over the -- in the -- okay, this last quarter and this quarter. So we hope to get those things will pass by us. And not just hope, okay, we are confident this will pass by us because of the -- our tractions in our platform strategy. Now, the second growth opportunity is really is the SSDs. SSD is a -- okay, we've been investing in this for a long time. And finally, finally people are -- the price of the SSDs are getting to be more reasonable. They are not cheap yet, but they're getting to be more reasonable that, as a result of this, okay, we're seeing more and more people are willing to use SSD for tablets or ultrabooks there, price range, okay, below -- even below like $800 or so. So we are seeing, okay, that as a growth opportunity. And as the price continue to drops, I mean when I say price, I mean as the price of the flash storage technology continue to drop, even bigger market opportunity for growth will be the hybrid, hybrid HDD/SSD, where we believe that probably in about exiting maybe 2014 or so, calendar 2014, we do believe it could be at least maybe 50% of the ultrabooks, okay, will have native HDD hybrid technology. They're basically providing the performance of SSD at the price of HDD, plus maybe, let's say, $8 or so of delta differential. And that -- okay, that will drive the growth significantly in that market. And then for the -- okay, like the -- okay, the third market of growth is, as we mentioned earlier, is the networking. I mean in areas like PON and network processors, okay, we believe those are the areas of growth opportunity and higher performance switching technology, especially the switching technology that will incorporate network processors down the road. Quinn Bolton - Needham & Company, LLC, Research Division: Great. And then just as a follow-up, you talk a lot about the SSDs, and it sounds like mostly client opportunities. Can you address sort of what you're doing in flash controllers perhaps for flashcards or flash arrays targeting enterprise applications?

Okay, you mean specifically flash controllers for the enterprise side? Quinn Bolton - Needham & Company, LLC, Research Division: Yes.

Okay. It's a much smaller portion of the business. So I consider the flash controller for the enterprise are the multi-channel PCIe controller as well as the SaaS controller, those are the ones that goes with the enterprise. So we are selling those devices, but the vast majority of the volume's still at the client side goes to the PCs.

So, Glen, if you look at the market there on the SSD front, it's very similar in terms of a split between client and enterprise as it is in HDDs today, right. I mean in terms of unit volume, roughly about 10% of the volume is enterprise compared to the remaining 90% being client. So like Sehat mentioned, it's a pretty small volume. We do play in that, but the volume opportunity is clearly on the client side.

Your next question is from the line Arnab Chanda with Avian.

Sehat, just a couple of questions. First of all, my impression is, and please correct me if I'm wrong, if you leave out sort of market trends and dynamics that you cannot control, the only market where you arguably have fallen a little bit behind is mobile wireless. Can you talk just qualitatively about do you think that you have to invest additionally to catch up in some of these areas given all the connectivity or application processor or modem? Or do you think that given the current rate of investment or maybe you're cutting back on some other areas, you can get to where you need to be? And I have a follow-up, please.

Yes, Arnab, okay, you're absolutely right. We are -- okay, we fall behind in some -- in certain areas. Okay, we made mistakes strategically focusing on 2 different platforms. In one area where we -- okay, we -- if we have not done that, we will have introduce our next-generation smartphone device at least, okay, 6 months or maybe 9 months earlier and even longer than that. So it was a hard lesson for us to learn, okay, and we -- nobody wants -- nobody in the company wants to repeat the same mistakes that we made. So in terms of investments, we have caught up, okay, so I don't think we -- I don't believe we need to increase our investments in terms of the headcounts, okay, and to move to the next level because after all, we're already also working hard on the next-generation device to ensure that next time around, we're not on the same thing again, okay, we made the same mistake. So we're comfortable that, okay, we're on the right path.

Okay, great. One question about an area that it seems like you're -- you've invested early and perhaps you don't really talk about it right now, but I'd be curious is kind of datacenter enterprise. You were, I think, the first ARM-based CPU in networking. We didn't really hear much about that beyond that. Can you talk a little bit about that whole area of datacenter enterprise, what your strategy is? Is that an opportunity in the next 12 months or is that something you'd rather wait? If you could -- if there's anything to discuss there with the 64-bit ARM CPU or other -- or 32-bit, if you could discuss that a little bit, that would be great.

Right, right, yes. We -- you're right, there's a huge opportunity for addressing the datacenters using low-power processors. This is the reason why we are investing in this area. But, okay, I mean, okay, you mentioned about 64-bits, yes, that's right. One area is 64-bits. Also, on more powerful, high-performance 32-bit processors, they will -- they have extended addressing modes. So we were early to lead this area as well. But this area is -- I mean if you look at the history, in the history of datacenters, okay, I don't know if you remember this. Okay, long ago when everybody is using Sun Micro servers for your datacenters, even though the x86 processor was so much better than the Sun Micro servers -- processors, we actually, okay, and as well as many other companies, stuck with the Sun servers for I think about 3 or 4 years longer, than what it was thought to be obviously, okay, should be happen for 3 or 4 years earlier. Okay, I think what's the reason was because in this business, the time it takes to -- for the applications reported from one architecture to the other architecture takes quite a bit longer than expected. So as a result, I think in this area, okay, I would like the investors to put their expectations, okay, low enough. Okay, so I mean check the expectation that this is not something they can do -- happen overnight. No, we still have to invest in this, okay, appropriately with the expectation that maybe 2, 3 years later, okay, this thing will finally -- okay, will have more meaningful penetration.

Right. Thank you, Arnab. We're a little bit -- I think what Sehat was mentioning is I think the market has to be a little bit more pragmatic in terms of when this would be big unit volume opportunity, right. I mean the unique thing that bring -- that we bring to market is we have the necessary broad portfolio, as we mentioned. We have the compute part, which is our ARMADA XP device, which is the only available ARM-based server out in the market today, even though it's 32-bit. And we have a networking component switch.

The 40-bit we're addressing.

Yes, the 40-bit addressing. We have our networking switch components and our storage components all combined, which provides a unique platform solution to a lot of our customers, right. I don't -- you don't see a lot of that from other customers, other vendors.

Your next question's from the line of Craig Ellis with Caris & Company. Craig A. Ellis - Caris & Company, Inc., Research Division: First, going back to the mobile and wireless market, Sehat, you mentioned the W-CDMA target for the end of the year. I'm wondering if you have a similar target for the TD-SCDMA market.

Well, TD-SCDMA market will -- okay, I think we'll be -- I'll be happy if we can maintain our market share that we have last -- this year for total of the next year.

So our expectation is really to maintain our market share next year, Craig. Craig A. Ellis - Caris & Company, Inc., Research Division: Right. And then on the storage side of the business, you've talked about the growth potential in both SSD and hybrid. I'm wondering if you can just contrast for us the dollar content that you have in hard disk drive when it's a 500-gigabyte platter versus SSD versus hybrid? And related to that, if PC units are flat in calendar '13, what kind of growth rate do you think is a reasonable growth rate for Marvell given the share gains that you see coming?

On the ASP front, we'll stay away from specific numbers on ASPs for HDDs or SSDs, Craig. All we have said in the past is our SSD pricing is higher and we'll just leave it at that.

Yes, but I also need to mention that -- we also mentioned in the past, when the volume is...

Increases.

When the volume increases, of course, the price will also go down.

Right. As far as the PC market, but the question -- regarding your PC market question, if the PC market's flat next year, obviously and that would entail maybe a flattish HDD market as well, we should see growth mixes of that due to share gains.

Your next question's from the line of Romit Shah with Nomura.

You spoke earlier about the opportunities in the white box phone market, and my understanding of that space is that Qualcomm and Mediatek are very well entrenched and it's also a very price-sensitive market. Should you gain traction here, Sehat, what would be the impact to the operating model target?

Well, the operating model should improve. Okay, as you say, okay, this is a market that even the biggest company in the world, okay, wants to get into. Okay, that's an indication that this is a very important market to address. So, okay, we're not shy of going to this market. Now, having said, okay, what -- the market -- this market also is evolving. Historically, the white box markets build cheap feature phones. But as the consumers trend to buy the top tiers handset manufacturer providing expensive, very high-end smartphones, the white box guys are realizing that there's a huge opportunity to build similar kind of devices at lower price, but not as low a price as the feature phone, but still significantly lower price than the Tier 1 handsets. So we see this is exactly the opportunity that we have, okay, enabling the white box guys to be more successful, okay, in increasing their top line, okay, by providing more advanced solutions at reasonable price. Now, it's going to be higher than the feature phone solutions, but they don't care, actually. They want, actually. What surprises me is, okay, more and more of them actually wants to have more advanced technology to differentiate among themselves.

If I could just add on to what Sehat said. We talked about earlier the operating margin leverage. So as more of those dollars come in from the white box market, we expect with the operating margin leverage we have that, as Sehat said, that'll actually increase those.

Just so I'm clear, your competitive advantages versus a Qualcomm or Mediatek in this segment are what?

Okay. So a simple, maybe like one sentence, okay, we build a Qualcomm performance for Mediatek price.

Got you. And then can I just ask you quickly on the TD market? Is TD-LTEs something that's going to develop in a more meaningful way next year or do you think it's a couple of years out?

TD-LTE is, okay, it's going to be -- starting to become meaningful toward the end of the year. But because the end of the year is short, okay, I will say, okay, really in the second half. In the next year after that, it will be very, very meaningful.

So I think you will probably see handsets in the market on TD-LTE probably in -- towards the end of next year or in 2014.

Or I think also I want to misspell -- okay, I want to maybe make a comment on TD-LTE. When we say TD-LTE, it does not mean, okay, this is just a TD-LTE. Every devices that we build and we call TD-LTE, actually it's backward-compatible to FDD-LTE.

Your next question's from the line of Blayne Curtis of Barclays.

I just want to go back and make sure I understood the comments on SSDs and hard drives in general. You're obviously -- your competitor is seeing an inventory correction, so I think you said you were going to do better than that. I just wanted to make sure that that meant growth. And then if you could just talk about on the inventory side, you saw some correction. I think your largest customer had a pretty significant increase in finished good inventory, and I think LSI is working through a similar problem. Just wondering if you thought that would be corrected in the January quarter.

Yes, so to clarify the comment on SSD, as you mentioned, our competitor is -- has guided down in that market. We do think we'll see some level of growth in that market, but at minimum, flat. There are some things in the works that we think may improve that. From an HDD, perspective, there are some inventory, both at our customers and at their customers. But we think that, that will largely work through by the end of the quarter. We also said we also have shared gains that we'll continue to see over that period as well.

Got you. And then just on the white box market, to the comment, you were the high-end guy in TD, and there were some low-cost solutions that moved in. When you look at the W-CDMA market, you're seeing some of the lower-end guys with 28-nanometer quad core on the roadmaps. I'm just trying to better understand where you fit in and are you going to have to move to 28-nanometer and keep up with this application processor cadence? And is that the types of products you'll have in the market next year?

Yes, okay, everyone -- I think it's clear that everybody will work on -- will be working on 28-nanometers, okay. And then once we -- when we finish with 28-nanometer, then everybody, they want to work on the next node. So I don't think that will change, okay. This is -- it is an area that will always have to continue to build smaller geometry devices and build more powerful processing capability, especially the graphics processing capability.

Your next question is from the line of Doug Freedman with RBC.

Sehat, could you focus in on the storage market for us? And I'm sorry if I missed it, if you offered, what percentage is the 500-gigabyte platter today? And what is the next technology that you think the market's going to need in just the HDD market?

Okay, let me -- I don't know the number of the exact percentage of...

So, Doug, you were asking what percentage of our total shipments was 500-gig today?

Sure.

It's about 40%.

And then a follow-on to that is and where is the market going from there?

So I think the market -- okay, it's clear the market is all going to move to 500 gigabytes, okay. The cost of building as the heads and mainly the heads in the media are yield improved, everybody will move to the next generations capacity nodes, so in this case, 500 gigabytes. Okay, my gut feeling, the percentage will double that by the end of next year.

At least in a mobile site for sure, I think, most of our -- most of the customers will probably move towards 500-gig by the end of next year.

Yes, yes. And, okay, we are the only sole suppliers of 2.5 gigs hard -- okay, 2.5-inch HDDs for 500-gigs per platter.

And then if I could move over to the networking market. You guys have been gaining back some share in the switching side of that business. How do you feel about your opportunities to continue that? I believe your competitors offered a new product rather recently and believed that they can start winning back some share again. How do you feel your positioning is there?

So, okay, I'm not -- okay, so I won't be able to answer that because I'm not familiar with, okay, the -- some of the...

Well, so, Doug, if you look at relatively speaking to what we have in the market, we have -- we offer the highest performance and highest dense ports [indiscernible] for us compared to what else our competition offers in the market today. So that's why we are seeing pretty good traction at some of the major customers. We don't see that changing anytime soon.

Yes, so -- also, that we have like whatever -- a device, like 100-something ports, and then -- so I'm not familiar what the other guys have, 200 ports or something. I'm not aware of that.

And as we continue to integrate with those, some of the technology from Accelerate or whatnot, I think that's going to make us even stronger.

Your next question's from the line of Mark Lipacis with Jefferies. Mark Lipacis - Jefferies & Company, Inc., Research Division: First question, on the -- you talked about the bogey of 10% of the W-CDMA market. So if you hit that by the end of next year, I mean, what do you think we're talking about in units, rough numbers?

Well, the market for W-CDMA is projected to be probably around 800 million units or so. So 10% of that is basically what we were targeting. Mark Lipacis - Jefferies & Company, Inc., Research Division: Okay, fair enough. And then on the -- a question on the hybrid drive market, I'm not asking for ASPs. But when you talk about shipping a hybrid drive, are you shipping both a hard disk drive and a SSD controller? Or is there -- I mean is there a scaled down controller there? Roughly speaking, what are we talking about in terms of extra content in the hybrid drive for you guys versus a hard disk drive?

Yes. For the early -- as usually what will happen in the early phase of the hybrid adoptions, okay, you will have 2 chip solutions, one chip addressing the HDD, then another chip addressing SSD. So there are different markets. There are customers, they want full-blown SSD. There are customer wants to have what you call the scaled down versions of the SSD. Now, eventually, okay, as this matures, the solution will be fully integrated. So what you'll see, there will be single chip handling HDD and SSD, okay, and this will be -- ultimately, will be the lowest cost solutions for hybrid. Mark Lipacis - Jefferies & Company, Inc., Research Division: Brad, did you give guidance on cash flow for this quarter?

Yes. $60 million.

Free cash flow.

Yes, free cash flow.

Your final question will be from the line of Aalok Shah with D.A. Davidson. Aalok K. Shah - D.A. Davidson & Co., Research Division: Just I'm trying to reconcile one thing first. Sukhi, you said gross margins wouldn't go below 50%. But if we start to look at kind of your kind of targeted goal of getting the 10% W-CDMA, don't you think we could probably see below 50% if that's the case? And then secondly, I guess in a higher picture or bigger picture wise, if I look at your R&D spending as a percentage of revenue, it's quite a bit higher than most of the peer group. And I know revenues have slowed quite a bit here because of some macro concerns. But when I look at the PC growth and subsequently HDD growth to be lackluster, why aren't you getting more aggressive on cutting back on your OpEx at this point?

Okay, let me address the gross margin. So the gross margin, we are confident with the gross margin model because if you look at the smartphones, smartphones are also moving rapidly to the LTE. These are also much higher price point. So if you include all of the product mix, there's no reason why we cannot achieve the target 50% at the worst case scenario.

Yes. And to address the second part of your question, the -- we are investing not for the current levels of revenue we have. We're investing based on the growth we see in the different markets that are there. So yes, as you look at it today, it is a higher percentage than competition, but we are investing based on what we believe we can achieve in some very high-growth markets. Aalok K. Shah - D.A. Davidson & Co., Research Division: If I could, I mean if we get towards the end of next year and we don't see this 10% achievable goal, what do you think happens then? Should we expect you guys to kind of cut back on the wireless market itself?

No, that's a speculative question. We'll answer that, okay, at that time.

At that point.

And that's all the time we have for Q&A today. Did you gentlemen want to make any closing remarks?

Yes. Thank you for attending the Marvell Conference Call. We look forward to catching up with you over the quarter. Thank you.

All right. Thank you.

Thanks.

Ladies and gentlemen, that'll conclude today's conference. Thank you very much for joining us, and you may now disconnect. Have a great day, everyone.