Q4 2020 Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the fourth quarter 2020, Marvell Technology Group Ltd Earnings Conference call. At this time, all participants are in listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During this session you'll need to press star one on your telephone.
Today's program is being recorded I would now like to introduce your host for todays program as Easter and Vice President Investor Relations. Please go ahead Sir.
Thank you and good afternoon, everyone welcome to Marvell fourth quarter and fiscal year 2020 earnings call.
Joining me today.
Marvels, President and CEO and Jean Hu, our CFO I.
I would like to remind everyone that so my comments today, maybe 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. Please review. This course these statements and risk factors contained in our earnings press release, which we filed with the FCC today.
Well sit on our website and none of them, we'll see some 10-K and couponing, we do not intend to update our forward looking statement.
Well today, but as opposed to certain non-GAAP financial measures reconciliation between GAAP and non-GAAP financial measures is available on our website in the Investor Relations section with that I'll turn the call it what the macros Commons and outperform.
Great. Thanks, Ashish and good afternoon, everyone.
Let me start with a quick recap of barbells financial highlights for fiscal year 2020.
GAAP revenue was 2.7 billion GAAP gross margin was 50.3%.
GAAP income per diluted share was $2.34 on a non-GAAP basis, our gross margin was 63.3% and non-GAAP earnings per share.
66 cents.
2020, it was clearly a challenging year for the semiconductor industry, but against this backdrop of macroeconomic uncertainty Marvell continue to take bold steps towards becoming a leader in infrastructure solutions not only did we achieved the complete realization of synergies from the integration of Cavium and the first quarter of fiscal 2022 quarters Adam.
Schedule, we announced the close three additional strategic transactions within the year, we acquired a quantia and the Vera and divested our wife by business.
In fact, the integration of a quantity and Ivera is well ahead of plan and this is reflected in our lower opex expectations for the first quarter fiscal 2021, which gene will discuss in her section.
Implementing all the key learnings from the Cavium acquisition or I T and operations team did an amazing job and completing the ERP integration of Quantia in one day and Vera within five days of closing the transaction.
In addition to the portfolio transformation, we won a number of key designs in fiscal 2020, which we expect will fuel multiple years of revenue growth for the company.
In wireless infrastructure, we started ramping our first generation Fiveg processors at Samsung when their next generation five you baseband processor and yesterday, we announced an even deeper collaboration with them.
During the last year, we also want to front haul interface chip and entered into the radio head with processors for massive mimo.
Equally exciting earlier today, Nokia announced an expanded relationship with Marvell on Fiveg infrastructure solutions, which I will discuss later in the call.
And Ethernet conductivity, we won a number of designs at leading networking Oems with our switching five solutions and storage, we started to ship and route pre empting controllers into high capacity 16, terabyte Nearline drives and secured the follow on controller for the next generation platform targeting higher capacity points well into the 20 plus terabyte range.
We released our N.B.M. you ever fabric Ethernet SSD controller, and a family of P. Cie Genfour Nvme Pcie SSD controllers.
Which are also powering our first major d. I win.
As we start fiscal 2021, we're excited about a number of product ramps, but are also trying to assess the near term impact from the Corona virus, clearly the safety and well being of our employees is our highest concern and I want to express my sincere support for all our people in China would've been the most impacted.
Prior to the outbreak gaining intensity, our bookings and backlog, we're getting stronger going into fiscal year 2021, driven by our own product cycles, such as the start of our Fiveg product ramp our success in Nearline drives and a recovery in our core business. In addition, the signing of the phase one trade deal between the U.S. in China was helpful and your racing trade tension.
Which it affected our business last year.
Well recently is the virus impacted become broader we've started to see supply chain related impacts to our business.
It's impossible for us to fully quantify the effect of the situation as our business on our business as it remain fluid. However, our revenue guidance for the first quarter includes a 5% reduction based on what we know so far in addition, given the ongoing uncertainty. We have also temporarily widened our guidance range on revenue from plus or minus 3%.
Yeah.
The plus or minus 5%.
Move onto our quarterly performance during the fourth quarter fiscal 2020, we delivered solid results and achieved 718 million than revenue above the midpoint of the revised guidance. We had provided a lot December said after we completed the divestiture of our Wi Fi business, our GAAP income per share was $2.62 in our non-GAAP.
Earnings per share 17, so.
First internetworking business revenue during the quarter was 377 million and grew 14% sequentially. The double digit growth was primarily due to full quarter contributions from the a vera and a quantia acquisitions, partially offset by the divestiture of wildfire.
Both of our recent acquisitions, we're off to a running start with the American basic business, delivering a solid quarter and a quantia is revenue trajectory continuing to improve as those customers completed inventory digestion.
Bookings trends for both of these acquisitions support before your expectations. We had communicated last year, while the of Air design team continues to work on completing designs. They had one prior to the acquisition. There also engaging with existing marvell customers, who would not work with them in recent years. The overall pot opportunity pipeline Revera is held very healthy and continues.
Abroad.
Outside of the two acquisitions wireless infrastructure shipments remained strong and enterprise performed as expected. In addition, we experienced strong booking trends in networking before the recent corona virus impact cloud and the outlook, while we assess the impact from this event, we continued to make progress on securing additional design wins in a number of key end markets I'll start with.
The wireless infrastructure market.
Yesterday, we announced an extension of our long term collaboration with Samsung across additional segments of the radio access network, we've been working with Samsung closely to deliver multiple generations base band and control plane solutions for both Fourg and Fiveg base stations, incorporating their intellectual property with marvelled OCTEON fusion processors.
More recently, we have also been partnering with them on innovative radio unit architectures designed to meet the dramatic increase in compute power required for the complex beamforming algorithms inherent to massive mimo deployments.
Equally exciting earlier today, Nokia announced that we're broadening our relationship for the development of multiple generations of custom and Multicore arm based infrastructure processors for Fiveg.
This is another example of the partnership model, we offer which enables our customers such as Nokia to integrate their unique technology into our programmable processor platform to develop customized products. It's really the best to both world as our customers can focus their internal resources on their differentiated technology and embed that IP.
He into the chipset significantly accelerates their time to market by utilizing other parts of the S.. So see sub system from marvell, such as the process or complex, which we have already developed in harden for base stations.
We were able to deliver this GRI of customization with our field proven flexible SST architecture in our fusion products comprised of arm cores, a variety of DSP cores tailored to our customers' requirements and customer developed IP blocks stitched together very efficiently by our unique interconnect to maximize performance is programming model.
Enables our customers to differentiate their solutions to their own IP and algorithms.
In addition to providing the underlying architecture for our customize fusion solutions are OCTEON Multicore arm based infrastructure processors also provide control and data plane process.
We're looking forward to growing our business with Nokia as they benefit from the growing Fiveg wireless infrastructure market, we expect to start shipping. The first custom product later this fiscal year and we're also starting development of the next generation of infrastructure processors and custom ethnicities.
In addition to the progress we're making it multiple tier one wireless customers with our existing platforms, where can we are continuing to innovate in this market and are working with analog devices. The pair their world class RF transceiver technology with our broad digital Fiveg platform. We both recognize the growing complexity in five years radio units with the proliferation of.
Technologies, such as massive Mimo, which is driving increased need for the very close collaboration between the RF and mixed signal portion with the compute domain.
This unique collaboration between the two best of breed suppliers will provide customers with significant improvements in size power and performance within the increasingly complex radio yet.
Before I move on from the wireless infrastructure market, let me spend a couple of minutes going over our perspective on the rollout of fiveg, including the key drivers the frequency bands in play such as sub six gigahertz versus millimeter wave and the pace of deployment.
First why Fiveg very simply it's significantly lowers the cost per bed of wireless lead transporting data, which benefits both carriers from an opex perspective, and consumers by enabling a better user experience. Our base assumption is that for the next few years. The overall wireless capex envelope will remain similar to historical.
Patterns, but the better economics of Fiveg will inevitably transition wireless capex away from legacy Fourg technologies, even under this flattish capex assumption, we expect to drive significant revenue growth is our content and share in fiveg is considerably higher than what we had in fourg.
Overtime, we expect that Fiveg will also create new opportunities beyond the handset, which could drive an upward inflection in capex and that would represent an upside to our base case.
On the subject to sub six gigahertz versus millimeter wave, while we believe that both modes of deployment will see significant activity over the next few years. Our view is that the vast majority of Fiveg base station Capex will be spent on sub six deployment, a leading industry analyst has a similar forecast projecting that over 95% of spend to go towards subs.
Next deployment Accordingly, we expect our wireless infrastructure revenue to follow a similar pattern and primarily derived from macro base stations.
Having said that as the small cell market develops in fiveg, especially for millimeter wave applications. We are ideally situated to address these opportunities with our multicore processor architecture, which can easily be scaled down to the relatively lower power and performance footprint needed in small cells.
Our platform also enabled significant software reuse for our customers as they scale down there macro solutions, we have a full set of capabilities for the wireless infrastructure market, including base band transport Ethernet connectivity and DFI eightsix, making us the ideal chip provider for small cells, which are likely to required the integration of multiple functions.
In a single chip or package for power and space considerations.
In terms of timing. This is an infrastructure business, where shifts from one technology to another are typically over a multiyear period with the rate of adoption constrained by flattish capex budgets. We're at the very beginning of a multiyear transition to fiveg and the vast majority of this opportunity is in front of us as you're aware Korea is the only.
Or geography, which started fiveg deployments in earnest in calendar 2019, and Wall Korea is an important region for our lead customer most of their base station shipments in 2019 use that pgas for processing and the only started to transition to our solutions late in the year. As a result, we expect significant revenue growth this fiscal year from deploy.
Shipments by Korean operators and these deployments will continue for a number of years additional growth opportunities are also in front of us from geography, such as Japan, and the U.S. when they start to deploy Fiveg later this year with respect to China, Marvell, historically had very limited exposure to their wireless infrastructure market. However, with the Ivera acquisition.
Question and our own organic efforts, we're now better position to also participate in China as Fiveg deployments.
In summary, the wireless industry, it's starting to see a convergence of factors important for fiveg adoption, including a more mature supply ecosystem, both on handsets and base stations and the opening up with additional spectrum, especially in the important sub six gigahertz bands. This combined with a better economics of the newer technology is increasingly driving carriers to shift there.
Capex to Fiveg base stations, especially in regions, where they're considering turning on Fiveg services in the near future.
New Fiveg base stations or of course backward compatible with Fourg and allow carriers the future proof their networks rather than continue spending on legacy technologies.
So as a result, we expect the wireless Capex will continue to accelerate to fiveg on the infrastructure side.
Now, let me shift gears from the Fiveg deep dive, we just announced our next generation of arm based infrastructure processors are OCTEON, TX to family targeting a wide variety of networking equipment, including switches routers secure gateways firewalls network monitoring smart Nixon base stations its portfolio delivers two and a half times perform.
It is improvement over the prior generation and can scale up to 200 Gigabits per second of packet processing scaling from four cores at the low end to 36 scores for the most demanding applications compared to solutions processing data only on CP Nucor's, OCTEON Configurable and programmable hardware accelerator blocks, which includes security pocket.
Processing traffic management functions provide a much better balance between power and performance in networking applications.
In fact, we have already started shipping production started production shipments of our OCTEON, TX to processors into our lead wireless infrastructure customer.
Our Ethernet switch in five products continue to win new designs in their target markets. As a reminder, our Ethernet switch strategy has been to expand beyond our enterprise campus position into the enterprise core an aggregation layers and into service providers, we play to our strength in offering feature rich products and do not target.
The pure speeds and feeds sockets and Hyperscale data center market, where there was already strong incumbency and a large networking Oems that announced their plan to offer internal eightsix directly the cloud customers.
Server products and our automotive products also remained well positioned for growth later this year.
Now, let me discuss our projection for our networking business in the first quarter fiscal 2021 as compared to fourth quarter results. Please keep in mind that our fourth quarter results included approximately five weeks of revenue from the now divested lifelike business. Therefore, I will first provide you with our revenue expectation for the continuing networking business, which we projected growth.
Sequentially by approximately low single digits on a percentage basis from fourth quarter results adjusted for the divestiture of life I. We expect this growth to be led by new product ramps and enterprise and cloud datacenter applications, while we project flattish revenue from the wireless infrastructure market.
Please note that this growth outlook includes the negative impacts currently known from Corona virus related issues.
To help you clearly model. This outlook. Let me also provide you with the projection for first quarter results.
Compared to our reported fourth quarter networking revenue of 377 million.
Which included the five weeks of Wi Fi.
Compared to this reported result, we expect networking revenue in our first quarter to decline in the low to mid single digit sequentially on a percentage basis.
Now, let me turn to our storage business.
Storage revenue for the fourth quarter was 296 million in grew 3% sequentially stronger than our expectations sequential growth was driven by an increase in demand for both of our storage controller product lines, specifically, our HDD business continued to benefit from our growing position in the near line market and our enterprise datacenter SSD business.
As continued to recover in the fourth quarter.
Datacenter led growth drivers more than offset the expected decline in the client market.
Fibre channel business remains strong and stable from third quarter.
As you may recall at our prior Investor days in 2017, and then again in 2018, we had articulated a storage strategy to focus on the enterprise and data center market and become less reliant on the client market.
And our HDD business, we projected the client business to Secularly decline as the shift towards Ssds, and Pcs accelerated and that we plan to focus on the growing Nearline market. In addition, we shifted investment in our SSD business towards higher performance, and stickier enterprise and datacenter solutions and DIY opportunities and away from the commodity.
Client market, where margins were less attractive and some of our customers were increasingly in sourcing controllers.
At this point in time, we believe that the bulk of the decline in exposure to the client market, including the impact of client SSD controller in sourcing at some customers is mostly behind us.
We estimate that our total client revenue exposure collectively across both HDD and SSD controllers, starting fiscal 2021 is only 5% of the entire companies revenue for context at our Investor Day in October 2018 clients storage was approximately 14% of total company revenue.
In fact sequential storage revenue growth in both the third and fourth quarter of fiscal 2020 was driven by our enterprise and data center products.
Next phase of our storage growth strategy, we had outlined with the emergence of the DIY market for custom SSD controllers, and we are now a couple of quarters away from mass production of our first major design win. We also expect to continue to ramp our pre amplifiers for hdds over the next couple of years.
Our recently introduced 12 nanometer PCIA E. Gen. Four SSD controller continues to receive strong interest from multiple customers, including several NAND Oems for its optimized blend of high performance and low power in a small form factor.
Our Ethernet based storage solutions are gaining momentum and we just announced we're partnering with leading Oems Act on Fox gone to bring our Ethernet bunch of flash or E. Buff technology solutions to market as you may recall. It Fms 2019, we demonstrated our nvme you ever fabric Ethernet SSD controller its product enables a disruptive new datacenter architecture.
By directly connecting Ssds through a switch to an Ethernet network without the need to go through a host such as a server is he bought platforms will start sampling the spring and incorporate marvelled and be Emmy over fabric SSD controllers for stare Ethernet switches and up to 48 ssds in a single chassis.
In aggregate, we believe the growing footprint of our enterprise datacenter storage controllers, and preempts upcoming ramp of our SSD DIY controllers and progress of our Ethernet based storage initiatives collectively positions our storage business for long term success.
Looking to the first quarter for our storage business, which is generally a seasonally down quarter for this end market coupled with virus related impact of this business. We expect revenue declined sequentially in the mid single digits on a percentage basis.
[music].
Let me close by thanking the more than 5500 marvell employees around the world for executing extremely well under difficult macroeconomic conditions I am looking forward to an exciting fiscal 2021 to capitalize on the multiple growth initiatives, we haven't been investing in over the last few years.
Fiscal 2021 also marks an important milestone for marvell as we celebrate our 25th year anniversary. It has been along an eventful journey. Most recently punctuated with the company's transformation as we pivoted towards the infrastructure market. The financial community has been well aware of our journey and we have now started to share our story with a broader audience.
We held our first industry analyst day in early December and the reception was outstanding we received clear feedback that our story needs to be told more broadly as they see marvell in the midst of multiple major trends, including Fiveg AI cloud and connected autos, we will continue to spread the message and our scheduling our next investor day.
For October six the New York, where we will provide an update on our progress towards our long term goals I look forward to seeing many of you at that event and with that I'll turn over the call to gene for more detail on our recent results and outlook.
Thanks, Matt and the gaps you anyway.
And then get our guidance for the fourth content provided on December 10 to 2019 ideally the football tail 30000 found the white Knight business.
Subsequently, we completed that channels <unk> life, I think news antisense by six approximately five weeks into the fourth quarter. So our results reflect the partial quarter contributing to find the wife I think NIM.
Yeah updated the only our revenue guidance between black.
The wife I fail.
Revenue in of was called tailwind to 700 and HCV.
I'll now update guidance over 710, Mimi at any point.
And what key represented 52% of how revenue in the fourth crotch, it and the storage contributes inflection 1%.
Revenue from our other business there with the 44, meaning in the flood quality at below expectations and accounted for 7% file revenue.
As a reminder, this business that consist of products such as the presence of machines and application process is we have stopped last team. So they will continue to decline over time.
In fact, our guidance for the first call until fiscal 2021, and keep paid a sequential decline in revenue in a high teens percentage basis found the out of business.
GAAP gross margin was the 42.5% which included the amortization of the boasts a punch yet and I realize you mentally avocados.
Non-GAAP across Nike and what's your 62.3% of revenue.
Outgrowth my JV thousands in the flood quality or at least like to the negative impact from said, Tim one time transition costs relate to that and I are a acquisition as we discussed last quarter.
GAAP operating expenses there were 419, even not that operating expenses were 306 Mimi.
GAAP operating loss was at 114, Mimi non-GAAP operating profit was 100 and when you when Libya, 19.6% revenue.
During the quarter here to better align the global economic ownership of our intellectual property rights feed our current and future its operation.
We transferred to said Hey, intellectual property trial subsidiary in Singapore.
In trend now I keep transfers these out no income tax and save approximately 763 ebay and for the with quality.
Which primarily captured the tax de facto for future actions in Singapore.
In addition, the changing that extraction award without seeing a small 50 basis points increase to our non-GAAP tax rate from a 4.5% to 5%.
For the flip quality care GAAP income per diluted share with the $2 to end the 62 cents, which included again from the sale why side.
And the income tax benefit simulator die key trends for.
Non-GAAP income per diluted share went through 17 cents.
Now turning to our balance sheet, our long term dad was 1.45 billion declining from the prior Claudia.
During the call to yeah, we completed that shelf, Hawaii, Nike and that used to the sale proceeds to pay off the 600 million ample each alone we entered into in connection with that acquisition.
And also we paid to all four.
The hunted just immediately about where we go on.
To find to the I'll punch acquisition as well as 210 to 15 email file terminal.
We also reviewed our share repurchase program and to be turned a 340 million to shareholders. If you will see 300 meeting share repurchases and 40 meeting dividend.
In fiscal 2020, Lee turned a total 510 24, meaning cash to shareholders.
We exited the quantitative 600, and the flicking each meeting cash cash equivalents, an increase over 209 million from the prior project.
Now moving onto our current outlook for the first quarter fiscal 2021.
No we haven't built into the guidance a 5% reduction in revenue due to the risks associated accrual and Empire.
Although the situation remains fluid and the estimate the impact is still unknown and assessing the full magnitude at this calling these not CFO.
Given the ongoing assets and team we have also a temporary labor like in the guidance ranch and rapidly.
So basically were forecasting revenue to be live and Joe for 618 medium class minus 5%.
We anticipate our capital last night and will be approximately 47.5% and a non-GAAP across not just will be approximately 63%.
We project, our GAAP operating expenses into being the Rangel 400, and intend EEMEA plus or minus the screen TV.
We anticipate our non-GAAP operating expenses for two intervention for 310 media plus or minus the coupon to fine.
The sequential seasonal increase the payroll taxes and if he said also bonus accrual was it had been significantly offset by early banks back to the synergy achievement and the disciplined Opex management.
From this high pulling taking the fiscal year, we continue to expect I would not have operating expenses that will come down to approximately 300, even by the fourth call tail for fiscal 2021.
Leaseback next interest expenses to be approximately 16 media and expects non-GAAP tax rate of 5%.
As a result, we anticipate the GAAP loss per diluted share in the Rancho photosensitivity turnkey sense.
And the non-GAAP earnings so put that was that this year.
In a range of 11 cents is was 17 cents upgrade care. Please open the line and that naturally traction. Thanks.
Certainly ladies and gentlemen, if you have a question at this time. Please press Star then one on your Touchtone telephone. If your question has been answered and you'd like to remove yourself from the Q. Please press the pound key our first question comes online.
It's not like.
From city, we also we'd like to ask that you. Please limit yourself to one question and one follow up you may get back into queue as time allows.
Okay.
Thank you for taking my questions a nice job on the results in guide and congratulations on the expanded no cavitation chip Matt. The team has talked about 750 million type line of sight Fiveg infrastructure sales 600 million across Samson Nokia and 150 million from of aircraft are up 20% off the 4 billion opportunity.
Can you just talk about the new expanded Nokia relationship and then the Samsung collaboration how is the team tracking to those numbers.
Sure great. Thanks that hasn't yet I think you got it exactly right just for everybody on the phone we started off with a with a base case that we outlined pre of era, which was 600 million, which included the pipeline that we have identified one business at that point, we successfully closed the Vera which which brought in number.
And that approximate range you mentioned about roughly half that business was was.
Was it was fiveg exposed.
And so the way I would think about it is that the.
The announcements that you've seen clearly add additional revenue on top of that.
I think what we're excited about is we really have now multiple customers.
For Fiveg solutions multiple products that we're selling to those customers and that actually layer in over multiple generations, including existing business. We're shipping today, new product ramps happening. This year and then as you referenced even on our Announceable Nokia multi generational agreement where.
We have a products ramping but later this year, but then even ongoing partnership to do more in the coming years.
On a on a spectrum of products. So I think overall very positive and clearly represents.
The announcements we made.
Certainly certainly in.
Substantially higher number to what we've already communicated.
Thanks, and as a follow up gene the 5% reduction from the virus can you just talk about.
What did you versus networking is it more.
Storage related and then.
Then networking.
Oh, yes.
My high level, you know a lot of things I know, so I'll estimate right now he's done more like a 40% age related storage aside at 16% anything related to networking side, Matt can give you a mile color on the networking side, we have some all the business, which she there's a component shortages that.
Impact our networking business.
And the story decide as same and I think our.
Our customers they have some supply chain disruptions. So that's what we know right now, yes, I think I think just.
To conclude we we've tried to size the impact as best we can as gene mentioned for from our side Theres really two types of supply chain disruptions. There's there's disruption to some of our our products, which are the bulk of the products that we ship every quarter, our integrated circuits, but we do have some board business. Both then.
And.
Ethernet Nics and host bust adapters for fiber channel as well as some of the board level products for smart mics, and so even though our supplier base is actually outside of China and some of the impacted regions there having some challenges in sourcing some of the components. So thats one dynamic we see.
But we're working through that and then the second is obviously many of our end customers factories are subcons or not at full capacity. So it's a fluid situation.
Right now what we're sizing is really what we see a supply chain related impacts both both to us as well as our customers.
Thanks.
Thank you. Our next question comes on the line that that Guy from Bank of America. Your question. Please.
Hi, Thanks for taking my question. My My first question is on Fiveg. So the opportunity on the base station side I think has been cleared on you articulated that very bad I wanted to ask on the radio side, what's the opportunity to leverage just kind of beachhead you have the aveda and I think recently also.
So partnership with analog devices for some integrated radio solutions and that is obviously a lot more radios.
Complexity on that side and on perhaps the Johnston displacement Sbgs, so talk to us about the radio opportunity for more vet in Fiveg.
Sure. Thanks that I think you know, we very much the our opportunity.
It's both in the base station or the base the BBU as well as the radio head and we started indicate that in the last few calls and even in some of my comments today, where as an example, with Samsung we're doing some very customized things with them.
In the radio head itself, which is really bringing our processing capability up from the base station unit.
Into the into into the radio head and on top of that so any sort of thinking one trend is being processing power processing compute moving up closer.
To the antenna, but the second is that in leased in some of the initial deployments of Fiveg Korea was one example, but theres others, there's quite a high density of massive Mimo radio has attached to each base station and so you sort of think about the idea that there's more processing power moving to the radio head and then there's more more radio heads.
Cash for base station it does create to create a significant opportunity in that and that's a trend by the way that we we see more broadly and not just is limited to one customer. So I think that's that's certainly exciting I think the second is with respect to analog devices.
We were sort of seeing each other now and in these types of applications, starting with our DSD business that we have but also in some of these applications. We're being asked to do more customize things and massive mimo and if you think about the architecture where.
There they have one of the leading positions obviously in the RF transceiver market and data converter market and that's having a very strong position and the DFI, which is basically the digital chip that interfaces with the analog and mixed signal functions.
The coupling of those two is becoming even more and more important and so how do you know there's questions from how do we do things like whole packaging products together, how do we align on what the most ideal interfaces are for the chips to communicate with each other what are the best architectures that we can pursue and since the two companies are extremely complementary.
In their offerings.
We see it isn't great opportunity to actually innovate together and provide optimized solutions for our customers, who really want to differentiate their products and so the 80 I teams got tremendous experience in this area. We obviously have a very experienced team of architects and technologists and so.
Really the basis of the collaboration is.
Able to address customers jointly and do that in a coordinated manner. So thats what were doing so I think the bottom line is works as excited about the radio head opportunities.
As we are and the rest of the entire base station system.
Got it and for my follow up Matt. Thanks for the color on the Stonegate side. I think you mentioned client is now only about 5% I'm off of that business sort of I forgot better you mentioned it just for storage off the entire company, but my question Randy is.
What is the right way to think about your storage business on a two to three year basis.
Is it still kind of a flattish business as it does low single digit growth business, what what does the right conceptually.
Just think about the storage business from our Matt. Thank you.
Yes. So yeah. This is just to clarify see I was pretty explicit but I'll say it again, the the 5% number I gave you was four for entire company.
And so.
Those of you could that have followed us from the beginning of our journey I mean, I don't know exactly what this number was gene, but it was probably 30, 40% company backdrop for 2016. So we've really we've really worked on this one and and certainly.
2019, probably accelerated some of this transition that we already saw happening. So as we look forward I think a couple of things that one is we're very excited about our growth drivers.
We did pivot the engineering, two or three years ago to this nearline enterprise type of market for cloud capacity.
I think theres no theres, a view that that's going to continue to grow in terms of demand for those types of drives and we've increased our position both on the controller side as well as in addition to pre App. So that's that's a nice growth driver for US. The second is an SSD is we've made the pivot from sort of supplying.
Commodity client controllers to NAND Oems to doing very sophisticated products that are doing things like Ethernet attached storage or in the certainly this trend of this do it yourself model, where we partner directly with the end OEM to define the fine really and Ssds, we'll see if you will.
That trend is going very well and that we expect revenue growth from that.
And so there's a number of exciting growth initiatives and so I think.
Although a lot of a declining client has has occurred clearly on the HDD side they'll still be more to go as Pcs transition. So the way we think about this business as we do think about it is certainly looking forward to give them. The exposure. We have to client is something that can grow it would be very modest Alan we think keeping this in the low single digit.
Range is a very.
Very achievable goal and given the the strategic nature of this business to marvell on the and the profitability profile. It's it's.
We got the right balance of investment and growth for this particular segment of our company.
Thank you.
Thank you aren't next question comes on line of Tories Lundberg from Stifel. Your question. Please.
Yes. Thank you on the congratulations on the strong results first of all coming back to the rig ahead opportunity obviously it depends a lot on the couple of Mimo architecture, but should we think of content here kind of being in the several several hundred dollar range.
He did add some color there that that'd be great.
Well look I think you know as was indicated in the in the prior.
[noise] prior questions, we do have a footprint today and radio head in a number of the application. So those are from DFI or some of those are are actually we indicated this also the that.
Certain customers and started using our fusion based products to do massive mimo processing, while transitioning the more customized solution. So those are there and you should assume that these are large.
Since no digital chips, and so we're not calling out ASV, specifically, but there clearly high ASP devices in that.
Don't know called hundred dollar ish plus range and you can go into sort of go go multiples of that depending on the complexity and how many units.
Cetera. So yes. These are these are normal large digital chips and that obviously.
I know from your past you are quite or even today you are still very knowledgeable about the analog market. So I think you know with that that Tam looks like and I think you also understand the interdependent season, the two and how critical that is the system design. So yes, it's really about you know the two companies working together and and.
Helping pull each other and a mutually beneficial opportunities, where we can work together, but yes far they asked piece goes or they're they're bigger digital chips.
Hey, good am I supposed follow up you talked in the past about the programmable approach really quick creating a lot of stickiness for you in your design wins.
We will look at these next partnerships that you announced especially the additional along with Samsung and also with Nokia.
Should we think about that stickiness still prevailing in the pretty meaningfully.
They're very much so and I would I would argue that was one of the key technical value props and we've been able to deliver I think if you. If you sort of think about this OCTEON based architecture.
Based on on on arm.
President at all hops within the base station, whether its massive mimo processing and the radio head whether its.
Whether it's the transport processing for layer to whether it's the base band processing.
It's very efficient when a customer actually goes goes all end with us and and certainly these designed by nature are quite sticky because these base station designs are quite complex is not a second source business. They once you get in they they last a long time.
But but clearly that's that's one of the key differentiators that that.
Our processor team has has delivered consistently for for five generations now of products. So.
That's absolutely how you should think about it.
Very helpful. Thank you.
Thank you. Our next question comes from online Blayne Curtis from Barclays. Your question. Please.
Hey, guys. Thanks, taking my question then a nice results. It's just kind of curious like a question about fiveg, maybe in that we're getting everything but fiveg just curious an update on kind of the enterprise channel and in that that business returning to sequential and year over year growth good thoughts.
Yes.
Sure Yes. Thanks, I think you know thanks Lane so so.
In 2019, and certainly in the in the midst of the the the dynamics around the trade War.
We saw a number of the enterprise Oems our customers get get whipped around a little bit.
And we certainly felt that and our results in a couple of different quarters. We were certainly encouraged after the signing of the phase one deal that things seem to to stabilize and in fact, we had very strong order momentum certainly in bookings momentum in Q4, I think has that situation stabilized.
And we started to see a very strong recovery in our core business, which which I think as you know as it is a very healthy business for us and it's one that prior to the trade, where we had actually been growing at a pretty significant rate I think we had six quarters of double digit growth in that business before we had the pause in 2019. So we're encouraged to see that rich.
Turn.
To growth, which was more of a I call. It a re stabilizing but also actually growth and then.
Certainly.
Understanding now we're dealing with the Corona virus situation, but it certainly hasn't diminished at all our longer term outlook, especially as we look through later this year with continued new product ramps I mean, we brought into Quantia. As an example, we paired up their multi gate technology with our.
With our per Steris switches, we see multi gig as a very clear trend that's happening our design win position has been very good there we've actually brought a new customers.
Both on the fly in this way side in the last few years, which we believe we'll start bearing fruit and then finally, what's embedded today and our networking number is also our automotive business, which is the automotive Ethernet and well those are still smaller numbers today on a relative basis, they're growing every quarter and their incremental incrementally adding revenue.
And we anticipate seeing.
Acceleration in that business as we exit calendar 20 heading into the model year 21, where a number of the vehicles. We were designed into going back when in two years ago, we'll start to ramp. So we actually have a glad you asked the networking question because it's a very large an important part of our business with some very exciting growth drivers to.
Complement our also you know equally exciting fiveg opportunity. So I think both of those are are still in front of us.
You can then just maybe a quick one virgina. It looks like you did a combination of buybacks and retiring debt just how you're thinking about use of cash.
You know you're going retiring more debt going forward.
Any help there would be great.
Yeah, I think are certainly.
Our number one helped activities between lacking the business. After we close to ultimately Atleast two acquisitions when that nice chair right. Now we did a shift our focus is to b tran excess cash to shareholders gases to buyback of cost that were very focused on our last minute Greek leaking like how we can do we can gen.
Sufficient cash flow to do both yeah. So priorities is to return cash to shareholders and then we'll be turned the page.
Hey down at that over time.
Thanks.
Q. Our next question comes from line of Ross Seymore from Deutsche Bank. Your question. Please.
Thanks, guys and congrats especially on the guide.
To the Fiveg side of things, Matt maybe a clarification before question.
Okay announcement from today.
A lot of investors debating, whether that's just a formalization of the formally unnamed second customer or an expansion.
And I guess the question is if it is the latter side and then expansion can you just go a little bit into what's the incremental aspect to it and forgive me if you captured that in your Fiveg.
Discussion earlier.
Got a ross and not not a problem to clarify on Nokia. So so first we're obviously thrilled to have a public announcement about something like this is clearly makes it a little bit easier to talk about this and what I would say is.
As we've we've had.
Very good experience and the partnership so far with Nokia.
We're very impressed by.
By the team and I think together, we've really executed well on this first product and so as you think about what this means what I would say, it's kind of two things. One is I would I would think of it is a broadening of the.
The opportunity in the relationship on the existing.
The existing program, we have which means you know obviously multiple generation and then broadening our exposure within their products and then.
And then with the with the announcement also references is partnering around embedded processing and multicore with our Multicore OCTEON family. So it's really a broadening of one an expansion.
As well so we're we're it's a big deal for us.
We're in we're fully fully committed to execute with them to making them successful and we think it's a great validation of the strategy. We put in place a few years ago and the investments we've made.
Very rewarding to see this we still have a lot of hard work in front of us because these are extremely complex.
Chips and extremely demanding applications.
But we're honored to be working with them and certainly to have an expanded opportunities that with them is very good thing.
Thanks, It sounds like clarification, then my follow up would be one for gene it'd be on the gross margin side of things you're very helpful. On the Opex side talking about where that would end the fiscal year.
The puts and takes on mix businesses that you sold coming out et cetera on the gross margin side of things. How do you think about that progressing over time, especially as the mix of the wireless infrastructure side seemingly would grow as a percentage of the company.
Oh, Yeah Ross. Thanks for the question I think that purchase peco from very high level right. If you go back to Q3.
Fiscal twinkie outbound snack and was 63.5% which included a Wi Fi, but now that an era then of course at that time that revenue leased at almost at the trough falls in the company to revenue level. So I'll call. My case, we think about is the true factor that winds of product mix Hawaii.
Revenue in Anvil.
Now when we closed the transaction when you look had to both a punch, yeah, Oh, and Iowa and also the wide eyed business the way to think about to date and they're all and the Whiteside business did they have a very same their financial profile right that revenue level gross margins around 50% I wouldn't say.
Right now that's the nature of that makes the driver for the near term means that when you think about he said alcohol smack issue to be go back to 60, 364% level going forward. We actually are quite confident about assists then our strong cross matching especially the.
Wireless infrastructure side it depends.
Fundamentally right across NIGC reflects channel for the IP Landale, you provided to customers and that we have very unique value proposition trial customers.
Cross all I'll call that line and the platform. So went to the revenue anomalies going on we also had an average your from into revenue level accompanied the overall oh cost that we think in the near term that it's going to be 60% to 64% in that longer term well quite confident.
The about sustaining strong cross margin going forward, yet and maybe I'll just add I think that was it was captured captured a gene, but I would just add up with respect to have era. There's a there's a couple additional things to point out I think one is.
Is the team is is laser focused on that particular segment and we've been highlighted at last quarter that there was some margin related transition impact we run the business over so theres a lot of specific work going on to improve that gross margin what I would say.
It has to add to what gene set on the relative trade, we made between of era and Wi Fi, while the revenue levels no call them, similar and margins or similar from a gross margin standpoint, the operating margin profile is quite different because with and that's something that we consciously.
At our heads around and we're okay with was with a Vera the nature of that business comes with comes within our funding for the projects, which offsets R&D. So it's it's a fundamentally higher operating margin business.
And I would say on top of that it addresses a much larger Sam than we were going after with Wi Fi and we think that business has a much higher potential to grow in line with the company overtime and so.
So yes it.
That was just might few extra comments on on of era, Yeah. Our long term objective of CACI to drive profitable growth right after that Mac and fully expansion into longer term.
Thanks for all the details.
Thank you aren't next question comes on line of Gary Mobley from Wells Fargo Securities. Your question. Please.
Everybody. Thanks for taking my question wanted to.
Go back to the Nokia topic can delve a little bit deeper into Ross's question [laughter] and when you were sizing up the opportunity for Fiveg <unk>.
Properly, citing $600 million and potential peak opportunity I think well, perhaps what's underpinning that Nokia assumption was that you were split that.
Basic business and their implementation in the re shark architecture three weeks, maybe two other ace expires as well where we'd todays press release is that maybe have some [laughter] city with Nokia.
And perhaps better than expected market share at Nokia am I reading that correctly.
You know I think I think the right way to read is kind of for what it says which is the companies have entered into a.
Multi generation in a multi product.
Collaboration and partnership where we're going to be working together.
We think as I said earlier, we think thats. Good for Marvell, we think thats going to remain more business for us overtime, as we execute and prove ourselves and we think it's good for them because of the nature of the solutions, we're providing so I mean, if you think about as as as more and more of Nokia business shifts to fiveg and that becomes more important for.
Them and certainly we hope to be part of the equation and helping them achieve their goals.
We'll then benefit from the content gain that we have and so I think thats. The best way to think about it is it's an expanded relationship theres new products were working on teams are working really well together. This is a multi year thing and and certainly as Fiveg takes off for the industry and for Nokia will we should be.
The beneficiary of that.
Okay. Thank you for that.
For my follow up I don't like there was any mention about thunderx too in the prepared remarks or any into Q. An eight maybe just give us an update on where you stand with respect to timing and perhaps the magnitude of of your first big marquee design win there for Thunderx too.
Sure Yes, no. It was I did have in my prepared remarks, but these were little bit longer than normal just given all the.
All the challenges with Corona in the various fiveg things, so apologize for that but it wasn't there and what we said was.
That.
We we are our arm server program was on track to ramp in the second half as we've been indicating before us we didnt really have a big change there I think it's pretty consistent with what we've been saying so far.
And I think thats, the only up that I've got on that that program will.
We continue to fill to work closely with the lead customer and.
Well open the thing.
Ramp up in the second half.
Great great. Thanks, everyone.
Thank you. Our next question comes the line of Harlan sur from JP Morgan Your question. Please.
Good afternoon, guys, a nice job on the quarterly execution.
As NAND storage kind of finds its way into new applications, which is gaining I think you guys have good exposure to this upcoming game console refresh cycle partnered up with one of the leading SSD suppliers because just around for you here on the SSD controllers side start hearing the April quarter or is it more likely to July quarter, and if you can just.
Give us some color on the performance Differentiators that enabled you to win with your controller solution for this high volume of design win.
Yes on them I think the way I think about it is as you're right I think met NAND flash is very much making its way into new use cases, and replacing conventional or traditional storage media and certainly that is one example that you mentioned.
I think I'll always said so far as we think that that transition in that market is going to be positive for marvell.
We.
I think thats.
That's probably.
Did you can imagine there's there's.
On that particular market theres theres sort of tremendous.
Confidentiality insensitivity around that so I'd say is net net in that particular transition I think that.
I know barbell, we'll do it will be in that positive from our though.
Yes, absolutely.
And then on the networking side on the strength of the networking business outside of Fiveg, specifically on the service side your lead customer and partner here Intel has seen strong growth in their server business into data centers and I believe that a quantia had a strong partnership with until well into service side, and I think that core Marvel's side.
You guys also has seen strong fly and Nick partnerships with Intel as well on servers. This server exposure driving some of the networking string turned to April quarter, just given the strong demand outlook for this part of the market. Yes, Yes, I think you're right. We've we've both companies acquired Marvell has been had partner.
In terms of Intel for some time add what I would say is that the networking strengths that we saw with bookings in Q4 and certainly our Q1 outlook was was broad based but I would I wouldn't I would say for sure that.
The dynamics, you mentioned that the server recovery and growth was quite strong and that's certainly benefiting those particular businesses for us both the quantia piece as well as us on the next side.
Great. Thanks.
Thank you Matt Yeah.
Thank you our final question for today comes from a line of John Pitzer from Credit Suisse. Your question. Please.
Yeah.
[laughter].
Yeah.
Yeah.
Well revenue when you guys have again still pleaded collaboration that 80 or at least the announcement.
Sdd on steps later on as we think about can we do you opportunity in up to 750, you'd kind of outline for Fiveg, how do we keep base station versus radio head to the next fall.
Yeah, I think the way to think about it is.
The the announcement with maybe I was really.
It was really a desire for us to just make up the market aware all the stakeholders in the ecosystem. The two companies. The teams are working together, we were already sort of jointly getting pulled into things. So I wouldn't I wouldn't sort of high you know in 80 I engagement to a new design win per Se I would say that were.
Pursuing opportunities, they're pursuing opportunities we tend to show up in the same place. So this is a way for us to add value to our customers.
And but as I mentioned, you know as far as is silicon for radio head, we have fusion based processors right better shipping today, we have next generation parts, which we've done a bunch of customization on with our customer IP, we see that trend continuing we also have we also issued.
More front end a sick related content. So this is actually quite a bit thats going on there. So I was just think of it as.
As a as an ongoing trend that we will see both growth and the in the digital unit as well as the radio heads and extend that massive mimo.
In flats and it becomes a major trends globally and you think about the out years as our content growth both in the U.S in the radio as we think it's just as the opportunity for Marvell certainly more attach of massive mimo means more capacity more users more silicon more chips and that's all the positive for us. So I don't think we have us.
Right now like how do we think about how much is and where and quite frankly those lines John are blurring because a lot of the new standards.
On Threeg TD in terms of the splits and where it is the processing in the five actually sit and what part of the network or what part of the base station unit is fairly dynamic in the things like Iran, coming which is also defining a new way of doing processing. So lot of diversity in the applications. We think we are well suited for for all of them.
But probably more to come on that as we as we go forward with our.
Different engagements were pursuing.
That's helpful. Just as my follow up I want to go back to kind of your guidance around the corner buyers and caveated by saying I. Appreciate the fact 30 food and any question I asked was going to be best guess potential to make sure I understand the 5% Cushing in the April quarters, what you've already seen the wider range is.
The uncertainty and you'd characterize it as more of a supply issue than a demand issue and a lot of your peers have as well I'm just curious it feels like the peak of the supply disruption was right after Chinese new year at week, one week things are getting better is that not putting words in your mouth is that how did you would sort of describe the situation to date.
Yes, Great. Let me, let me take into pieces. So I think the first is.
You got it right so the and again sorry for somebody five so the first 5% number was our estimate of how much we now what we've guided the sixeighty, we basically back that down about 5% from where we were prior to Corona hit it where we where we saw Q4.
Or sorry, Q1 lining up so we did that in a fairly detailed way just looking at them bridge from where we were to where we're guiding and the moving pieces and as you mentioned today, they're all supply chain related we have really no way to know if there has been any demand destruction, where would occur what that.
Actually happening I think I think thats become.
Certainly and then on the auto and the plus or minus five that independent Thats, just saying hey at the midpoint, we normally guide plus or minus three given just how volatile this thing as.
We don't know does it come come back at the same become more of a not issued as a couple of quite serious we even more serious today. So thats why we widened the range.
And so yeah, I think ices conclude by saying I read the same probably reports you do and we certainly see the activity that says.
Batteries are gradually coming back online where in China are gradually going back to work.
But we don't really know with a ripple effect is through the to the global economy candidly.
From from this disruption, we just don't know and so thats why I think probably ourselves here is our.
I'm hesitant to call with demand change, we just don't know and so I think that's what it's going to probably played itself out here.
Over the coming quarter.
Great. Thanks for the call congratulations.
Thanks, John.
Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to assist Shiran for any further remarks.
Thank you everyone for joining us today, and we look forward to speaking with you next quarter.
Thank you, ladies and gentlemen few participation in todays conference. This does conclude the program you may now disconnect good day.
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