Q3 2020 Earnings Call
All participants already listen only mode at the speaker presentation that will be a question and answer session task question. During the session you will need to press star one on your telephone. Please be advised that todays conference is being recorded if you're required to further assistants press star zero I would now like to hand the conference.
Over to your Speaker, Ashish <unk>, Vice President Investor Relations, Sir please begin.
Thank you and good afternoon, everyone welcome to Marvelled third quarter fiscal year 2020, Onek School, joining me today, or Matt Murphy, Marvellous, President and CEO and Jean Hu our CFO .
I would like to remind everyone that certain comments today may include forward looking statements, which are subject to significant risks and uncertainties and which could cause actual results to differ materially from management's current expectations.
Peter to view, the cautionary statements and respective contained in our earnings press release, which we find that the FCC today and posted on our website as well as our most recent tend to Kate and thank you findings, we do not intend to update our forward looking statements.
During our call today, we will refer to certain non-GAAP financial measures reconciliation between GAAP and non-GAAP financial measures is available on our website in the Investor Relations section would that outcome the color what the math for his comments on our performance.
Great. Thanks, Ashish and good afternoon, everyone on the call.
As a reminder, we close the acquisition of a quantia in our third fiscal quarter. So our consolidated results include a partial quarter of results from their operations as well.
During the third quarter fiscal 2020, we delivered solid results and achieved 662 million in revenue.
Our GAAP loss per share was 12 cents or non-GAAP earnings per share was 17 cents at the midpoint of guidance.
Storage business grew sequentially, and we had better than expected results from our networking business.
Well, we cannot influence the macroeconomic environment I'm very happy with our execution on the things we do control.
Earlier this year, we discussed a number of significant design wins for our products in Fiveg base stations enterprise switches automotive Ethernet and data center storage.
In the third quarter, we continued to add to this growing list with more wins, which I will discuss later in the call.
Our engagement with customers continues to strengthen which is becoming evident in our success in winning high value sockets in all our target markets, which we expect to drive sustainable growth over many years.
In fact, one of our important growth drivers has already started the benefit us and I'm very pleased that we shipped a significant amount of our fiveg products in the third quarter, helping our key customer rapidly rollout base stations for the initial wave of Fiveg deployments in Korea.
Course, this is just to start to Fiveg deployments and we're looking forward to a lot more growth from fiveg in the longer term.
More recently, we closed the acquisition of a Vera on the first day of our fourth quarter the acquisitions of a quantia in a bear very strategic to broadening our semiconductor solutions portfolio for infrastructure customers. We are well underway the integrating both teams within our networking business and I would like to extend a warm welcome to all the new employee.
So I joined the Marvell team.
We also expect to complete the divestiture of the Wi Fi connectivity business to NXP and the first half of this month.
However, as we currently still own the life by business My comments today on revenue expectations for the fourth quarter include a full quarter of expected results from that business.
I'd like to take this opportunity to personally fact, the 600 dedicated employees in that business for their years of service to Marvell and for staying focused through this transition we wish them all the best.
Now moving on to the performance of our two core businesses.
First in our networking business revenue during the quarter was 330 million flat sequentially as compared to our expectations of a low single digit decline.
This improvement was split between partial quarter contributions from the aquatic acquisition and organic marvell businesses.
During the quarter macroeconomic uncertainty continued to impact demand from the enterprise end market.
Additionally, as expected demand for our wife byproducts declined seasonally in contrast, our embedded processors delivered double digit sequential revenue growth driven by strong fiveg shipments.
As you may recall in the early part of this year, we had anticipated the start of initial production for our Fiveg products in the fourth quarter of this fiscal year. However, last quarter, we announced that we were able to start production in the third quarter.
He customer requested very aggressive delivery timelines to meet their commitments supporting five you Rollouts in Korea.
Standing execution by our engineering and operations team allowed us to rapidly ramp production and successfully deliver fiveg products in volume within the third quarter itself.
This was also very impressed very impressive demonstration of the maturity of our platform and quality of our npis process that enabled us to transition from sampling our new Fiveg processors in the first quarter to driving a production Rab shortly thereafter.
The third quarter was just the start of the Fiveg ramp for us as it was driven primarily by single region. We expect these initial deployments in Korea to continue to be the main driver for our five year revenue for another couple of quarters, we should start to see the benefit from other geographies later in fiscal 2021 by the time, we approach the second half of next fiscal year we.
Spect, a strong increase in our Fiveg related revenue driven by continued Korea deployment and the start of Fiveg adoption in Japan, and other countries such as the U.S. as they start to install fiveg base stations and higher volumes.
In addition, we expect to start production of baseband processors for our second tier one base station customer in the fourth quarter of fiscal 2021 further adding to our overall fiveg revenue ramp.
Our progress to date has also enabled us to engage with them and longer term technology Road map discussions.
The broadening adoption of our flat of our Fiveg platform as a testament to the advanced capabilities of our Multicore embedded processor portfolio further complemented by our Ethernet switching five products.
And we now have added verus full custom ace and capabilities, enabling us to offer an industry, leading fiveg suite of technology.
Before I move onto the of Air acquisition, Let me spend a couple of minutes on the unique capabilities of our OCTEON embedded processor platform. As you may recall OCTEON was the first Multicore processor architecture with the complete set of on ship hardware accelerators for networking applications.
Since then the OCTEON platform has been widely adopted for control and data plane processing across a broad range of networking applications, including base stations switches routers broadband access and firewall appliances.
This platform now skills up to 48 optimized arm cores and includes hardware optimize packet processors crypto engines virtualization support and a wide variety of network interfaces are fusion baseband processors are built on the same proven OCTEON architecture, adding basebands specific hardware accelerators and DSP cores.
An important benefit for OCTEON fusion customers is the ability to reuse the entirety of their sizable control and data plane software investment.
As they designed in our products across their portfolio.
The software re is not only speeds our customers development cycles, but also creates very sticky designs for marvell.
Our OCTEON fusion family crude fully programmable arm and DSP cores, enabling an extremely flexible and scalable architecture further optimized by implementing certain fixed functions in hardware acceleration blocks, the speed simplicity and scalability of the OCTEON programming model has been a key differentiator and an important driver for the adoption of our price.
Officers and multiple applications. In addition, as processing spreads into new domains and base stations such as the radio head customers are also turning to our processors for new functions. As an example, as we discussed earlier this year one of our customers adopted our existing fusion basebands solution for massive mimo processing. This represented there fastest route to.
<unk> market as their software was already up and running on the OCTEON architecture and the fusion implementation was flexible enough to extend to their massive mimo application.
Longer term customers will often require a customized OCTEON fusion processor optimized for specific application such as the complex beam forming needed for massive mimo.
Im pleased to announce that we now have been awarded essentially design win by key customer for fusion based solution customized for massive mimo processing in the radio head.
The additional complexity in the solution has also enabling a higher ASP than our existing base band product.
In addition, we are driving a fast time to market by leveraging the flexibility in our processor platform and expect to complete development and under one year, allowing us to start ramping this product into production by the beginning of calendar 2021.
We're also in advanced discussions with the second customer for processing solutions for massive mimo.
Moving onto a Vera the combination of of era, and Marvell creates an infrastructure ASE inc. powerhouse with the scale and design flexibility, leading wireline and wireless Oems are looking for from their semiconductor partners.
Kevin No Buckley, who is a very as general manager has joined rockets team and will be leading the basic business for marvell.
In addition to Kevin we're fortunate to be adding multiple key leaders from a Vera who along with a talented global ivera team bring a tremendous amount of industry experience and technical capability. This team originally part of IB Oems Microelectronics business brings a proven track record of delivering a large number of highly complex a six.
Very demanding customers.
In terms of revenue, we continue to expect that Ivera will contribute approximately 300 million an annual revenue next fiscal year significant amount of of air as revenue is from the wireless infrastructure market, primarily for digital front end, a six and radio heads, which aligns extremely well with marvell is expanding presence in base stations.
The base station revenue from a barrel will be in addition to the organic marvell opportunities I discussed earlier, we estimate that a very brings an incremental $4 billion to marvellous addressable market across the datacenter carrier enterprise and automotive end markets.
There's design capabilities, coupled with our broad technology platform will allow us to leverage our combined IP portfolio.
Across the full spectrum of custom standard semi custom solutions. We also expect to benefit from a broader combined customer base.
As I mentioned earlier, we have now added a quantia is leading multi gig Ethernet products to marvellous broad switch by portfolio extending our reach.
In both the network infrastructure and the rapidly growing automotive Ethernet market.
For our July .
Who is the Quantia CEO has joined Marvell and take it on a broader role as the general manager for all our Ethernet products, including automotive fragile brings a tremendous amount of industry experience and we're looking forward to working with him and his team we have already integrated roadmaps to create a very compelling end to end easer net conductivity portfolio and in fact.
Combined Marvel on a quantia team have already secured their first major design win together.
This win was for a multi gig Ethernet fight in a tier one networking Oems campus, which platform and we expect to start ramping production in the second half of next fiscal year.
In addition, the response from multiple automotive customers to the combined company roadmap has been very strong and we are jointly working on additional opportunities to add to the 16 design wins Marvell is already one across a broad range of Oems.
From a revenue perspective macroeconomic uncertainty impacted the quantities revenue in the first half of the Quantus fiscal year as their key customers reduced purchases to better match their inventory with demand.
With the acquisition now complete we expect to grow this business to approximately $100 million an annualized revenue in fiscal 2021. In fact, the quantities revenue was already started to recover from their June quarter on a run rate basis.
Turning now to the growing ecosystem for arm based compute and the data center.
At the Supercomputing conference in Denver, we announced the availability of Nvidia Gpus support for Thunderx to based server platforms to provide HPC and cloud customers with the powerful solution for exco scale computing.
In addition, we recently announced that Microsoft has started to deploy servers based on Marvell Thunderx to server processors for internal Azure.
Development workloads.
We believe that this is an important milestone on the path to the broader adoption of arm based server is across the Azure platform.
The progress of thunderous adoption at our cloud and HPC customers gives us confidence and expecting revenue growth next fiscal year from our server processors, starting from a base of low initial volumes and then continuing to ramp in the second half.
As we look beyond the datacenter server market. We're also seeing multiple opportunities to leverage our thunderx processor cores and that's a C or 86 solutions for applications, requiring embedded high performance compute engines.
Moving onto our outlook for the fourth quarter for our networking business.
Driven by primarily by full quarter contributions from of era, and a quantia, we expect an approximate 25% sequential increase in networking revenue.
We are expecting revenue from a quantia products to continue to recover from the low point they reported earlier this year.
For the rest of Marvel's networking business, we expect fiveg shipments to remain strong while demand from the enterprise end market remains weak, including a decline from a number of Chinese customers. As you may recall in prior quarters. We had indicated that these customers appeared to be building inventory to guard against any future potential supply chain disruptions.
All in the fourth quarter of fiscal 2020, we are anticipating a sequential decline from that elevated run rate. In addition to general end market softness. We're also projecting the Wi Fi business to declined seasonally in the fourth quarter.
Turning to our storage business storage revenue for the third quarter was 288 million growing 5% sequentially as expected. This growth was driven primarily from the enterprise and datacenter market. However, we did experience weaker than expected revenue from the edge market with a softening in demand from gaming and video surveillance.
We also continue to see a rapid conversion from hdds, and ssds and the PC market, which presents a headwind for our client business.
Despite challenges from current trends in the client and edge markets, our strategy to focus on the enterprise and datacenter market, including a strong position in high capacity cloud drives.
Continues to pay off to drive growth for the overall storage business.
Last quarter, we introduced the industry's first pciethree Gen four SSD controller.
Based on a 12 nanometer process.
As product delivers higher performance with in a lower power envelope in a space optimize package to enable our customers to develop smaller form factor solutions. In addition, our solution also allows customers to eliminate DRAM from their ssds, which also reduced the size and power while lowering their bill of material multiple customers include including.
Several NAND Oems are deeply engaged in evaluating our product as it uniquely addresses a number of their emerging mainstream skews, where they need the balanced performance in power in a small form factor solution.
This PCIA Gen. Four architecture is also the basis for our customized SSC flash controllers for embedded and do it yourself applications.
Our first major DIY design that a tier one system level OEM is in the final stages of development, we expect a sharp ramp in revenue from this product in the third quarter of next fiscal year, when our customer begins mass production of their system.
Turning to the fourth quarter for our storage business, we project revenue to be flat to up slightly on a sequential basis, we expect our revenue from the datacenter and enterprise and markets to continue to grow from a strong third quarter, and offset weaker trends and the edge and client markets.
In closing, we continue to win new designs and position ourselves for solid growth was strong execution on new product introductions are fiveg products. It started shipping in volume, helping us offset macro weakness and other end markets such as enterprise.
We expect Fiveg base station deployments to expand into multiple geographies later next fiscal year, which we anticipate will drive a substantial increase in revenue.
In addition, we continue to expand our engagement with a broad set of tier one fiveg customers.
Our storage business, a stabilized benefiting from our growing exposure to enterprise and datacenter applications and grew appreciably in the third quarter. The acquisitions of a question of Vera meaningfully increase our addressable market opportunity and add the Marvel's infrastructure capabilities to create a very unique technology platform.
I'm looking forward to an exciting fiscal 2021.
With that I'll turn the call over to Jane for more detail on our results and outlook.
Thanks, Matt and good afternoon, everyone I'll start maybe below five financially sound for the third parties, which include a passionate contrails without found Concho acquisition, which we closed on the 19 cents in September .
I think the Mandia the guidance provided on the 29, okay for the third call taking now to include any contribution from the pending a contra acquisition.
Revenue units it caught tailwind to 662 medium braces Alkyclean, Tim for 660 meeting at the meat upon.
Networking represents 50% of high revenues in the third call chat, we'd start contributing 43%.
Revenue from our other business with what do you find even enough there to quantify expectations and it declined 14% sequentially.
Their products accounted for 7% value.
GAAP gross margin, what's your 51.3% non-GAAP gross profit with 421 media, 60.5% for Bakken and Eagle pulling to flat guidance range.
GAAP operating expenses and were 400 at the end of two meaning.
non-GAAP operating expenses like 283 million slightly about needlepoint guidance due to the CLO share overall, concho acquisition and the plot yet.
We now the impact of from an L. Concho acquisition non-GAAP operating expenses would have been below the low end up for guidance.
Our country level of all tax reflect a lower level for bonus crude.
GAAP operating loss of 50 62 media.
non-GAAP operating profit was 100 again, it maybe 21% of programming.
GAAP net loss per diluted share with 12 cents.
non-GAAP earnings per diluted share was 17 cents at the meat pine guidance.
Now turning to the balance sheet.
Data quality at we turned to 40 medium to shareholder gets you to dividend and then we access to project lead to 438 meeting cash cash equivalents.
Long term bed with two began an increase of approximately 315 BBM from prior Claudia.
The increase in wood from and drawing down our revolving credit facility for funding the acquisition of our content.
Inventory increased to 60 HPV and from the prior Claudia. Thank you one meeting of the increase in went to from a contra acquisition, including a turnkey fair amount and that App.
So for the increase was to set politics back to the growth OFAF Fiveg evening.
Let me now move onto our current outlook for the fourth quarter fiscal 2020, which include the expected leads out from a punch yet another acquisition for the full Claudia.
Guidance also includes activates out for the full quantify the Wi Fi business.
So the sales and wildfire business. It's a completed we'll update that revenue how shall flock guidance for the fourth quarter.
We continue to expect out revenue in the kind of qualitatively, Matt impacted by the U.S. accounting, the ex probably beats patients seeking Chinese customers.
Specifically leap X revenue to be interventional for 710 to 15 medium class a minus 3%.
We anticipate out that gross margin will be approximately 45.5% and I would not have across not just will be approximately 62%.
And then he said come out to from global foundry and that we have a significant one time transition cost that I expect it to negatively impact our gross margin.
The fourth quarter here.
We say gross margin returned to more than 63% when we complete the divestiture of why effectiveness and to fully integrate punch yet another leg into my balance supply chain.
We project, our GAAP operating expenses to be Evangelical 420 by medium to 455.
We anticipate our non-GAAP operating expenses to be in the range of 300% safety Mimi and two or 320 me.
We expect net interest expense to be approximately 26 million as a reminder, at the beginning OFAF with quality and we financed through the acquisitions will there be done six happy medium bleach.
And did increase Eddie Threep lactating out guidance to flat interest expense.
We anticipate that GAAP loss put that at this year you may have NGL for 17 to 23 cents.
And at non-GAAP income per diluted share Evangelical 15 to 19 cents.
Before we open the line for questions. Let me make a couple for longer term, how many operating expenses expectations. Given we have a few moving parts of from three transactions.
First due to the typical seasonality in paid with taxes married increases and they reset.
Bonus accruals the from the current low level, we expect our non data all packs uniforms cross sale for next fiscal year, two grew by approximately 5% sequential basis.
Second we have a quickly start to integrate both timeshare and that law and the ERP integration had been largely completed and deepening our fastest our talented synergy achievement.
Well continue to drive as the many synergy achievement and operating efficiency improvements to feed code 2020 wine, while you might in the growth initiatives.
Position us to deliver long term profitable growth.
So we completed divestment over Wi Fi business and to fully integrate quantia under an era, we expect all packs to decline to the rise to for fees code 2021 from the Q1 Highpoint I just outlined.
As a result, we project our non-GAAP operating expenses in Q4 next fiscal year will be approximately 300 anemia.
Operator, please open the line fluctuating thanks.
Thank you as a reminder to ask a question you will need to press star one on your touched on telephone to withdraw your question press the pound.
Again that star one on your touched on telephone to ask a question.
Thank you. Please ask one question and one follow up.
Please standby, while we compile the Q on any roster.
Our first question comes from the line of effect ARIA of Bank of America.
Western please.
Thanks for taking my question.
Not a few quarters ago, you gave a 600 million dollar on long term opportunity and Fiveg.
What is the confidence in achieving that and just what does that number look like now that event as into makes and I think you highlighted some.
Additional opportunities also and massive mimo.
Yes, great.
Thanks, So I think the answer your first question. We you write a couple of quarters ago, we articulated.
The.
The 600 million dollar number which was really the business that we had already secured design wins for we still feel very good about that opportunity and in fact, as we indicated in the prepared remarks.
Theres, even been some some incremental change to that on the positive side as we transition at least one of our customers to a higher ASP product from the massive mimo area, so that tends to be tracking well.
In terms of the design opportunities in our customer positioning so we're quite confident there.
I want to Vera.
What we said was about half their revenue was from the wireless infrastructure market base stations of which a portion of that is.
Is tied to Fiveg and certainly we see that contributing as well and that would be on top of the 600 million and I look forward you know to completing a full quarter with a very under our belt and then.
Articulating the combined opportunity in the future, but it's definitely above 600 million just given the fact that of areas, bringing in a pretty significant revenue and the base station market.
All right and so my follow up.
Jim Thanks for giving us.
Gross margin on the Opex puts and takes I was hoping you could just for clarification given just the contributions of the different.
M&A moving pieces in your Q see and Q4.
So that we can online the Martin's accordingly.
Yes, the that it's actually quite history fall leg. If you think about our operating expenses tied into for Q4, which included both a punch here and at Merrill off for the full Quanta, which also include the Wi Fi business.
So moving forward to if we end up a closing the Wi Fi sale in our Q4 the that the way the best way to think about it easier I also guided you.
Q4 next year, the all pack season going to be 300 million may not have Wi Fi is so a simple way to think about the that's how we're going to migrate likely to have a Mary kipp and bonus the increasing reset in Q1, but were going to solve the dose to increase it by improving efficiency.
And achieving additional facilities. So you can largely be with the difference between Q4 this year and the Q4 next year. It's the difference in the Wi Fi business getting out.
I went on the same site Jane if you could give us the puts and takes in Q4.
From competed at Quantia, and Q3, which added probably some small amount and then in Q4 right do you have the two acquisitions, but then bye bye.
Goes out but is down seasonally.
I think just im just trying to contrast, the outlook you gave versus what people's expectations going into the quarter. Thank you.
Okay. Great. So Q3 Q4 is actually when you think about who the Q3 hour Opaxio added 218, even.
Without any acquisitions.
We actually achieve significant amount of lists and energy right at the beginning of for the two acquisitions. So the two acquisitions it properly add biotech.
$37 million for all packs, that's why the Q4 meet appointment for Opex guidance.
The current.
Level, so the way to think about the to AK SAP asset because of the two acquisitions and then when you get into Q1 next year.
Of costs that were going to have that wind phy business coming out to if we close the transaction, but at the same time the opex. It will stay around same level, because thats, 5% sequential increase from the that married and the bonus reset.
Hey, make this is a fee. So I think from I think your question was also in the topline side. So I think for Q3 again launches effort are fairly small Pete and it's a fairly small number. So Q3 revenue is pretty much you should assume it's really marvell.
At the very small help from the financial side I think on Q4 again I think what we can do the mind you have kind of what we expect on on a full year basis. So as we said over the 300 million dollar business type for next year.
Launch next year, we believe is about 100 million, but as we said, it's still recovering to what does that number right as you remember from where they were originally why again if you remember when we said the divestment. It's a 300 billion dollar business right. So you can do the quarterly number and it's on a on the low end of that number given we had at the seasonally low point I think thats, how you can think.
About revenue for Q4.
Thank you.
Thank you. Our next question comes from Blayne Curtis of Barclays. Your line is open.
Thanks for your question that was going to curious if you've obviously had you've talked about more opportunities on our wireless side and you can deal with you haven't had its the capabilities is kind of curious.
The timelines of kind of combine these roadmaps and scale up there and kind of if you just talked about the pipeline.
Look forward opportunities that you've looked at with your customers that you could potentially move over with those capabilities.
Sure Great question. So a couple things. So one is I talk about in two dimensions. The first is.
We've already had hit the ground running on the customer side. So there has been.
Pretty extensive global road show with a combined marvell into Vera team to to articulate our strategy for both seven and five nanometer and our technology platform. We're doing this in a very targeted manner and really think about it as.
We're we're we're going to address we're going to lineup our IP roadmap that we've had inside the company with the end customer orientation. So we're going to go go more narrow and go much bigger with.
With a handful of large customers across those end markets I mentioned, which is cloud.
Enterprise automotive it also base stations and that that's gone extremely well.
Second as we've done already have very good job of the team integrating the.
The IP team from from of Era, and also the backend teams into one consolidated central engineering effort. So when we hit the ground running on our next generation process technology platform, we're going to have one platform that we can leverage for our ASIC business for a semi custom business and for our staff.
Our product business.
And that's resonating very well with the customer base I think they wanted to see us actually bring the team together quickly and have one integrated offering and I would say the feedback has been phenomenal from the road show in terms of interest from all those end markets that I mentioned.
Thanks, and then maybe if you just talked about the the the ramp through your lead based facing customer you said you shifted early you've been hitting these aggressive timelines obviously they needed to deploy those get him quality carriers and ramp I think you were looking for contribution in January you speak to whether that still on track in in.
In your guidance in the energy that there's any visibility you mentioned some some regions, but in terms of the traction there getting your visibility into getting those targets for that customer. Thanks sure yet no. It ramped up in at ramped up fairly steeply which was positive it's going to probably remain certainly from a Korea standpoint it will.
It will keep deploying at that level and then we see continued momentum as our customer deploys and other regions and within those other regions other carriers within those regions and certainly even even in the Korean market I.
I think I think the best is still in front of US. If you look at subscriber penetration, which has been very fast in Korea I think today, it's around 15% of total subscriber subscribers are on Fiveg and certainly that's going to trend significantly higher next year. So I think think of it is sort of the first step is korea's ramp and it's going to say.
Hey, strong for the next few quarters and then we anticipate additional regions kicking in in the outer quarters with what looks to be a very strong second half as fiveg really picks up momentum at our design position.
Should enable us to participate in that.
Okay. Thank you.
Yes.
Thank you. Our next question comes from Ross Seymore of Deutsche Bank. Your question. Please.
Thanks for let me ask a question, Matt I wanted to focus more on the enterprise side of things in your preamble you talked a little bit about the China inventory digestion, but last quarter. You also talked about some of the big customers that hit you with some order cancellations relatively close to your call. So overall I just wanted to see how long.
Do you think that inventory burn in China is going to last and did the weakness that you saw from that large customer continue into the fourth quarter guidance or is that kind of plateaued.
Sure. Thanks, Ross, Let me, let me talk about them in two distinct pieces, because they're a little bit different.
I think on the on the China side, what we what we signaled was we did see inventory being built I think primarily due to concerns about restrictions from from an endless point of view and.
We had signaled that in over the last couple of quarters, we saw it happened and we called out that we now see the we see that reflected in our Q4 outlook, which is that inventory had been built in Q3.
And.
And that was not going to continue into Q4.
So that's sort of a separate geopolitical issue on the on the on the enterprise market relative to the broader enterprise market. We certainly were impacted last quarter. We did signal that we had a slow down in the and the outlook fairly close to the call Thats continued and I think if you just look at the commentary in.
General out of the market I think most of the large company selling into the enterprise.
Our continuing to have a weaker outlook, primarily due to the macro and I think the way we look at it is the certainly there's some there's some well look at United States. The while the consumer as strong I think the business environment tends to be fairly cautious until there is maybe more clarity on the some of the trade related issues.
Or there's some conclusion, it's going to continue to remain choppy and so that's that's what we're seeing currently I'd say I and this whole thing by saying at the same time because of our the investments we've made in some of these new emerging areas and candidly the the.
Teams.
Yes, very strong execution on our new product development, we've been able to offset some of this weakness in Fiveg. As one example, this past quarter, which we expect to continue but we also as we said in our prepared remarks, we see multiple growth drivers heading into next year, which even with a weaker macro we think our product cycles will will work.
Areas through.
That's great thanks for that.
Follow up on for Eugene.
I guess, maybe a clarification then the question the clarification on the Opex does it go up 5% sequentially in the first quarter for all the reasons you described before but then comes back down when the Wi Fi comes out so that nets out kind of flat.
And then the question behind that would be on the gross margin side of things you gave great color about what it would do once you got the integration done would you care to give us any idea on exit rates like you said on Opex being 300 million next fiscal year, what the gross margin might be is that about when you get over the 63% again or is there some different timetable and.
Yeah.
If you think about gross margin is right at the two major drivers that are revenue level and the product mix, we're quite confident when we complete why thats chair and to fully integrate it two acquisitions that we should get down to about 63% very quickly.
Then beyond to that JV, the it's going to be driven by revenue level when our revenue level recover it helps to improve gross margin for their above that level and oncology product makes these another way typically we'll see how the product mexicos each quantify that we're quite confident.
We'll be able to try to gross margin about 63%.
Quickly probably in Q1 next quarter next fiscal year and that go beyond that.
And the Opex side.
I'll pick side, I think a really that you're absolutely right. When you look at the bonus reset and the married to increase attacks. The all added together in Q1, that's the 5% sequentially increase that we discussed today, we'll take down that I'll pass it to the 300 median apple assets in Q4 fiscal 21.
Thank you.
Thank you. Your next question comes from Gary Mobley.
Fargo. Your line is open.
Hi, everyone. Thanks for taking my question, let me apologize in advance Theres any background noise.
Ask about sort of the revenue breakdown post sale of the wife I am pleased business. It sounds like the baseline there for that business in the fourth quarters.
Excluding that business is $675 million and how should we think about the seasonality off with that as we started out fiscal year 21 in progress through that fiscal year.
Yeah, Okay, Gary I will try to give you some connor where certainly not guiding next fiscal year, but typically the waitressing cloud revenue seasonality may not Wi Fi, peaking at the Q wind sequentially versus the Q4, they will be slightly low single digit decline.
Just rank less seasonality and then when you migrate into Q2 will increase slightly I think has the most important things the second half as Matt mentioned, we have assembled very significant new revenue drivers the Bakken related to our own product cycle. Despite the ofour normal seasonality.
Macroeconomic situation those drivers the coming from Fiveg from.
The iwai SSD solution, so those things equity to drive our revenue significantly higher in second half flow. So that's the only can I can give you are right now.
Okay, that's helpful and.
And just to confirm some of the stats for the connectivity business with it being down seasonally in the in this fourth fiscal quarter, presumably somewhere in the ballpark of $65 million.
Can you confirm that this business is still 50% gross margin business and most important likely operating breakeven in the current quarter.
I think of the right way to think about the days what do we gave you guys before ride to visit business operated around the 300 median revenue maybe some seasonality and gross margin around 50%. So that's it that's what we provide in the past.
Okay, Alright fair enough. Thank you guys.
Thanks, Gary.
Thank you. Your next question comes from CJ Muse Evercore. Your line is open good afternoon, and thanks for taking the question I guess is.
Learn more about deployments for your lead customer on the Fiveg side, and and you gain a better understanding of kind of a geographically outside of Korea.
Just to build plans can you speak to how you think about your market share there as well as content.
As we push forward.
Yes.
Just to make sure I got this you really saying Hey beyond Korea for our lead customer what is the deployment look like and then what is our content relative to maybe some of those different regions. They get that right CJ exactly yes. So I think the way to think about it is.
First just on the content side is this tends to be one platform.
The the only differences I would note is to the extent that in certain regions that massive mimo is deployed more extensively than that's certainly a positive thing for us because we have more content in those radio heads and as I mentioned, we already have some content today and radio heads in the future we wouldn't have in a more customized purpose built.
Solutions.
Beyond Korea, we see certainly Japan.
Deploying next year, a lot of that's driven by the country hosting the Olympic games.
Certainly hit for those of US here in the United States, you can see the pretty strong momentum among the various carriers about their plans to deploy fiveg thats, probably more robust later in 2020.
I think.
Theres certainly.
With respect to the device side, there's a there's a slow devices out there, but the sort of the Holy Grail that people have in mind is when there's an iPhone fiveg and to the extent that that the timing of that product becomes clear I think we certainly think that that will help overall adoption of fiveg and drive demand for the service probably very similar to when.
The product initially came out and made the transition to threeg that drove a big cycle and we've seen cycle subsequently from Threeg LTE to Fiveg. So I think there's a number of positive data point, certainly we get more and more encouraged about the adoption of the technology.
And then there are other things going on there's a there's their spectrum licenses in India and other countries. I think we're just going to see continued sort of evolution of various countries around the world deploying but for US, It's really Korea, Japan, United States and then some extent depending on when India decides to kick in our lead customer has always had a strong presence in that region.
But but again content you should assume unless there's some very high adoption of massive mimo in a particular region should be very similar to the numbers we've been talking about.
Okay very helpful. I guess as my follow up now that have various close can you talk a bit about the strategy.
Try to bring there are no I guess your number one customer there.
So the is SP side.
Well, what I'd say is.
And what's what's resonating well is that the across all of quite quite frankly, our combined tier one five fiveg customers and base station customers is that.
Our end to end portfolio and our offering is is second to that okay. I mean, there's there's not another company that has all of these various pieces under one roof right from base band IP to transport processing IP.
On Hall connectivity.
Obviously didn't now we're getting very strong DFI.
Experience and capability from a Vera and plus some of the massive mimo efforts were putting in so that that I wouldn't say across the board has resonated extremely well that entire data chain.
Being able to be provided by Marvell and so certainly we're engaged.
Both with with the Americas to remain involved the marvell customer base and presenting it as one unified strategy. There is no theres no specific update on it on an existing customer what I would but I will say just having brought a vera on board.
Recently, I mean, we've already gotten RF cues from several customers that.
We are aware new customers for of era, right and we're bringing those marvell relationships and so we're still early days, but that certainly to be effectively a month than and be already engaged in these types of discussions is very encouraging to me.
Very helpful. Thank you.
Yes.
Thank you. Our next question comes from Joe Moore of Morgan Stanley . Your question. Please.
Great. Thank you Wonder if you could talk a little bit about the Thunder opportunity you talked in the main.
Remarks about the update for Microsoft which was good to see how do you size that potential and what are the prospects for other customers.
With domestic cloud and also in China for that.
Sure. So let me give give a big picture first and then we can we can get frame our opportunity.
So I think one positive thing certainly out of out of the Supercomputing conference. This year and you can even look as recently as the last couple of days with with Amazon's events.
It's pretty clear that the ecosystem or arm based server class CP use continues to grow I mean, certainly in the couple of years, we've had the business or even less.
He has been tremendous progress there and so we look at a one is a positive that there's a number of different solutions and other coming to market.
The partnership with Nvidia has been significant and I think they ability to go work inter operate with them certainly of the excess scale type of opportunities as a big deal.
We were pleased to announce that we.
Progress on the Microsoft front and that we put out the joint press release, and we certainly see that.
Those deployments starting initially in the early part of next year and then ramping.
In the second half I think it's a little bit early to call the.
Size in the slope, but.
Clearly, we're encouraged that we've gone through the gauntlet of qualifications and.
And joint development there over the last couple of years, it's been a it's been a great partnership and we were looking forward to this ramping into production in the in the second half and I think everybody knows the the sort of size of the server CPU market is.
Decca billions of dollars I mean at our own analyst day, we said the subset of that that we were going after it was probably in the range of $4 billion or so of Sam just as a subset. So still remains a big opportunity still lucrative but we'll probably give more color as we approach production ramps to be able to give you assumption.
Right.
Great. Thank you.
Yes. Thanks.
Our next question comes from Harlan sur of JP Morgan Your line is open.
Good afternoon. Thanks for taking my question on your second fusion customer for Fiveg base stations, they've made some commentary and wanting to pull into development schedules and accelerate their time to market with dare fiveg platforms.
Fusion program is a semi custom programs. So I think that there's only so much did you guys can do to kind of pull in these type of projects, but do you see the potential for possibly pulling in the production ramp into fiscal Q3, and then on future programs would just customer, which you already seem to be engaged with our.
Central of increasing your dollar content.
Include things like Opteon embedded for control and data plane Ethernet products. Your radio head content from both coal Marvell, then and of era.
Sure well.
Thanks for the question. So I think the wed frame it at a high level is if you look at.
If you look at our lead customer and I noted some of the statistics about how fast we were able to bring them to production and just the overall development cycle time, I think that was one.
One compelling reason why we were chosen.
At the second opportunity was really the confidence in the team's ability to.
To dramatically improve the historical cycle times of getting these types of basics out in general in the base station market and so we've got some really strong proof points I think.
And we're executing extremely well to the aggressive schedule that we had committed to upfront for the second customer.
We certainly have proved our teams capability to the extent that people want to try to go earlier than we would certainly do everything we could we're currently on track to sample the product.
Tape outs sample have production.
In line with what we've been saying and Thats currently the planet record, but we're always very sensitive when our customers want to go faster and to the extent that they we could mutually aligning that we would but at this point. We are committed we already committed a pretty aggressive scheduled to begin with and so that's what we're sticking to on the second part of the question.
At least so far the because of the partnership has been strong and the engagement and we have been delivering to what we said.
Anytime you do that with the customer it opens up opportunities and so again, you kind of nailed it between OCTEON for the transport full lasik capability for DSV and the ability to add even some some marvell IP in there.
Massive mimo Ethernet front haul conductivity.
It's it's a pretty compelling portfolio. So we're hopeful to continue to win more business.
Across the board and certainly the best way, we can do that as.
Live up to our promises and execute really thoroughly to what we commit to and that's what we're intending on doing at least with this current opportunity.
Thanks for the insights there and then on storage in the last quarter. I believe you guys are still shipping under consumption in the storage business and so still some room to get back to normal consumption levels on top of that I think that you're ramping pretty strongly into your two customers Nearline 16, terabyte HDD program.
And thats looking to be a pretty strong tolling for them in the first half of next year.
Hi, This is Steve platforms are doing well cloud spending is accelerating so help us understand.
While the business on a sequential basis.
Doesn't seem to be going into January quarter.
Sure, Yes, I think you nailed the growth drivers pretty well and certainly.
I think the effort candidly that we put in over the last three years to really re pivot the storage business and.
Focus on the cloud and enterprise and get those design wins and get them products developed and get a ramp that's all starting to play out and.
That's helping offset what we see is pretty continued weakness.
Both in the client side I think there's been some pretty well telegraphed challenges on the CP you front in terms of ability to build enough notebooks that hasn't had an help anybody certainly the drive companies and the end Oems I.
I think also the.
The export restrictions in the and the bands relative to some of the Chinese Oems in the video surveillance area.
Clearly those those.
Surveillance cameras and devices have a tremendous out of storage attached to them and Thats also got some impacts.
Derivative impact, we don't sell directly into those companies, but we sell to drive companies that may or may not have business, there and that's certainly a weakness too. So I think we see these these edge and client markets being fairly soft.
And then offsetting it and even.
In the case at Q3 more than offset it was strong growth on these products cycles and the Tailwinds that you mentioned and so we're going to continue to do is continue to execute our strategy. We've been putting all of our R&D efforts into the markets that are growing today and.
Where we can control our destiny.
On research and development product execution, we will somebody the other things like PCCU shortages or government bands on its hard for us.
Two.
The influence those all we can do is manage around it and where we can control our destiny.
Thanks, Matt.
Yep.
Thank you My next question comes from Timothy Arcuri.
Yes. Your question please.
Thanks, a lot I guess the first question gene is maybe if not some qualitative at least some quantitative commentary around what the what the long term financial model will look like for the new company.
You were saying before you could get about 66% gross margin and sort of 30% to 32% Opex target I know gross margin you said will be back above 63 exiting fiscal 2021, but where should we kind of think about.
Sort of the upside beyond the 63 and sort of where Opex can go and in.
Sort of a new company here.
Yes, Tim Thanks for the question I think the in the longer term, though we're quite confident we'll continue to drive that gross margin expansion.
Combined debt portfolio, especially we are very metric folks they infrastructure maquet as Matt mentioned that we have very broad portfolio.
Overall, I said earlier cross matching impacted by both the level for revenue and upon that Nick when we recover from the current revenue level and continue to expand the especially that off Fiveg grant and adding new product cycle is unique to my now in the second half next year.
We do see mid revenue on that locally, but that will help improve our gross margin and the progress is how what did that.
Looking at that level on the operating margin side that we continue to.
Focused on operating margin expansion. So our focus is definitely it's the same operating margin target to make it before we continue to manage you the X gene a cost to to make sure. It's below 7% number revenue and R&D, that's the big investment needs very important facet to drive the longer term profit.
Well grow assistant we continue that you might peaking out business. So when our revenue level going up our motto is highly leverageable, we'll get to our operating model quickly.
Got it got to Jane Thanks for that.
And then I guess, Matt maybe can you give us some sense I know, maybe you don't want to give us a number but of the 288 million and storage can you give us a sense of how much is SSD sort of on a relative basis and maybe from a competitive point of view how much do you worry about the threat of your customers who continue to try to active we displaced you there I mean, how real is.
Thanks.
Sure, Yes, Tim I think the way to think about our storage businesses in we actually I think youve followed us we made the pivot, which we thought was more appropriate.
Back when we close Cavium, we added fibre channel and we did our analyst day, and we really really decided to talk about the business more in terms of end market orientation enterprise and data center versus clients just because from it from a from an R&D standpoint, that's where we invest we'd look at it from a from an end end market.
Application point of view not so much how much do we want to spend and X Y Z product lines. So so so again I think the commentary I get that Harlan a few questions ago is probably the way you should think about it which is we're executing well to our strategy on the enterprise and the data center side and that continues to grow as a person.
Many of our total storage, which is encouraging on the competitive threats side, you know I'd say a couple of things one is.
You know at the analyst day.
We did about a year ago, what we what we said was look we acknowledge that verticalization is occurring in particularly on the client area in particular in the we believed that the low end portion of the PC market was probably the place where we would see the most traction from from our our our NAND customers.
Who wanted to go vertical and we've seen that play out now we weren't necessarily putting much if any R&D in that area and so we've just been managing that trend what we're encouraged by and that's actually why we purposely called out.
The product we just introduced our first 12 nanometer product is it's a standalone controller and I would call that for the higher end of the market, but really what we are able to leverage is for the for the DIY opportunities.
It's the same.
Same process node same IP said, just customized very specifically for an application.
And that market that business is do what this DIY concept, which was really more of a concept actually when when we first talked about in 2017 that become real and now we're even saying in Q3 of next year, we expect a sharp revenue ramp as a result of that business model catching on.
In the cloud and beyond and I think that trend, we're going to continue to see and we looked like a really good alter a really good choice there because.
The end customers want a supplier, who actually has deep experience working with other people's Nab and so when you.
When you if you were and OEM and you wanted to get an man supplier with their own controller team to go start working with everybody else's man that probably isn't going to happen because nobody really wants to share their their their inner workings of how their their product inter operate. So we think that the outweigh trend is real it's growing in importance to us.
And so we're going to take a standard product approach that gets us the IP we need. So we can go do that but to the extent we can produce a standard product out of it that's got broad market appeal that can fit certain swim lanes or skews of our end customers, where they don't have the capability or the capacity of the design team internally to do it that we would be a good supplier.
So the bottom line as we see our SSD business.
Growing.
You know through DIY and others.
On an ongoing basis from starting at this point going out through next year and beyond driven by some of these trends that I articulated.
Awesome, Matt Thanks, so much.
Thanks.
Thank you our last question comes from Chris Caso of Raymond James Your line is open.
Yes. Thank you good evening.
First question is regarding the fusion radio headwind that you talked about if you could you give a little more color on that and assuming thats incremental to the revenue run rates, you're running in Fiveg right now and perhaps talk about some some timing and magnitude of.
Win win win that ramp occurs.
Yes, sure Chris So the way to think of it as we had a customer uptake.
Our our prior generation fusion and because of the architecture and the scalability of the program ability right they were actually able to implement it.
And go into production fairly quickly and so that that's that's in our current run rate model today.
Just to clarify the nexgen that we won.
Adds more functionality and so as a result actually has a higher ASP. So when that product kicks in which would be in the early part of 2021 and production I mean, we're going to get the whole development done.
In calendar 20, so in that ramps in calendar 21, certainly that some incremental.
Incremental.
Revenue to us what I would say is the dark horse is what's the adoption of massive mimo going to be and I think to the extent the massive mimo does better.
Thats certainly.
Thats certainly going to be an opportunity and then beyond that this is a trend we see so this wasn't just one customer who had their own kinda concept about how to do this we very much see the trend of purpose built optimized silicon in the radio head not only at the.
At the customer that we're engaged with today, but at multiple other customers and including a very strong engagement, we have already with the second customer today to do something very similar so it's a trend.
We see it and we think we're very well positioned to take advantage of it with future design wins beyond our lead customer with this type architecture.
Thank you.
And as a follow up.
On the Quantia business, you talked about getting back to 100 million revenue run rate in that business is that just a function of.
It comes to customers burning off inventory and get it back to normal shipments and one of the prospects of growing that business beyond the 100 million level.
Yeah, Chris I think it's a combination one as well as inventory digestion and getting back to normalized run rate and then the second is.
His new design wins that Quantia had already secured prior to us.
After the acquisition their pipeline was pretty strong when we acquired them and certainly.
I think it goes without saying with the reception for the combination has been very strong both by the enterprise customer base as well as the is the automotive customer base I mean in the enterprise side view as it creates a much stronger scaled up by team with best in class technology from both Marbella Quantia, we've got that.
And fully integrated now under under for Rogers leadership and on the automotive side. We're we have really by far the most compelling end to end portfolio from all the way from 100, megabit fives roadmap at 10 gig and beyond over copper with switches and multiple configurations.
Accounts at a substantially scaled up R&D team to go deliver to what that market needs.
So I think I'd, just say if it's a combination of of.
Wins that they already had new wins were getting and then certainly the inventory correction that a lot of folks when through from the first half to the second half that starting play itself out as well as we head into the year here.
Thank you.
Yep.
Thank you at this time I'd like to turn the call back over to Ashish Ryan for closing remarks, Sir.
Thank you everyone for joining us today, and we look forward to seeing you at the upcoming Barclays Technology Conference in San Francisco.
Ladies and gentlemen, this concludes todays conference call. Thank you for participating you may now disconnect.