Earnings Call Transcript - MRVL Q4 2020

Ashish Saran, Vice President, Investor Relations

Thank you, and good afternoon, everyone. Welcome to Marvell's Fourth Quarter and Fiscal Year 2020 Earnings Call. Joining me today are Matt Murphy, Marvell's 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 our actual results to differ materially from management's current expectations. Please review these cautionary statements and risk factors contained in our earnings press release, which we filed with the SEC today and posted on our website as well as our most recent 10-K and 10-Q filings. We do not intend to update our forward-looking statements. During our call today, we will refer to certain non-GAAP financial measures. A reconciliation between our GAAP and non-GAAP financial measures is available on our website in the Investor Relations section. With that, I'll turn the call over to Matt for his comments on our performance.

Matthew Murphy, President and CEO

Great. Thanks, Ashish, and good afternoon, everyone. Let me start with a quick recap of Marvell's financial highlights for fiscal year 2020. Our GAAP revenue was $2.7 billion, GAAP gross margin was 50.3%, and 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 was $0.66. Fiscal 2020 was clearly a challenging year for the semiconductor industry. But against this backdrop of macroeconomic uncertainty, Marvell continues to take bold steps towards becoming a leader in infrastructure solutions. We achieved the complete realization of synergies from the integration of Cavium in the first quarter of fiscal 2020, two quarters ahead of schedule, and we announced and closed three additional strategic transactions within the year. We acquired Aquantia and Avera and divested our Wi-Fi business. The integration of Aquantia and Avera is well ahead of plan, which is reflected in our lower OpEx expectations for the first quarter of fiscal 2021, which Jean will discuss in her section. Our IT and operations team completed the ERP integration of Aquantia in one day and Avera within five days of closing the transactions. In addition to the portfolio transformation, we secured 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 of 5G processors at Samsung, won their next generation 5G baseband processor, and yesterday, we announced an even deeper collaboration with them. Last year, we also won a fronthaul interface chip and entered into the radio head with processors from massive MIMO. Earlier today, Nokia announced an expanded relationship with Marvell on 5G infrastructure solutions, which I will discuss later in the call. In Ethernet connectivity, we secured several designs at leading networking OEMs with our switch and PHY solutions. In storage, we began shipping and ramping preamps and controllers into high-capacity 16-terabyte near-line drives and received the follow-on controller for the next generation platform, targeting higher capacity points well into the 20-plus terabyte range. We released our NVMe over Fabric Ethernet SSD controller and a family of PCIe Gen 4 NVMe SSD controllers, which are also part of our first major DIY win. As we start fiscal 2021, we are excited about several product ramps, while also assessing the near-term impact of the coronavirus. The safety and well-being of our employees is our highest concern, and I express my sincere support for all our people in China who have been most impacted. Prior to the outbreak's intensity, our bookings and backlog were strengthening going into fiscal year 2021, driven by our product cycles, including our 5G product ramp, our success in nearline drives, and a recovery in our core business. The signing of the Phase 1 trade deal between the U.S. and China helped erase trade tensions that affected our business last year. However, as the virus's impact broadened, we began to see supply chain-related impacts to our business. It's impossible for us to fully quantify the effect of the situation on our business, which remains fluid. However, our revenue guidance for the first quarter reflects a 5% reduction based on what we know so far. Additionally, given the ongoing uncertainty, we have temporarily widened our guidance range on revenue from plus or minus 3% to plus or minus 5%. Moving on to our quarterly performance, during the fourth quarter of fiscal 2020, we delivered solid results, achieving $718 million in revenue, surpassing the midpoint of our revised guidance from December 6, after completing the divestiture of our Wi-Fi business. Our GAAP income per share was $2.62 and non-GAAP earnings per share was $0.17. In our networking business, revenue during the quarter was $377 million and grew 14% sequentially. The double-digit growth was primarily due to contributions from the Avera and Aquantia acquisitions, partially offset by the divestiture of Wi-Fi. Both recent acquisitions launched well, with the Avera ASIC business performing strongly and Aquantia’s revenue trajectory improving as customers completed inventory digestion. The booking trends for both acquisitions align with our full-year expectations communicated last year. While the Avera design team is completing designs they won before the acquisition, they are also engaging existing Marvell customers who had not worked with them recently. The overall opportunity pipeline for Avera is healthy and expanding. Outside of the acquisitions, wireless infrastructure shipments remained strong, and enterprise performance met expectations. We also noted strong booking trends in networking before the recent coronavirus impact clouded the outlook. While assessing the impact from this event, we continue to make progress on securing additional design wins in key end markets. Yesterday, we announced an extension of our long-term collaboration with Samsung across additional segments of the radio access network. We have closely worked with Samsung to deliver multiple generations of baseband and Control Plane solutions for both 4G and now 5G base stations, incorporating their intellectual property with Marvell's OCTEON and Fusion processors. More recently, we have partnered on innovative radio unit architectures to meet the increased compute power required for complex beamforming algorithms in massive MIMO deployments. Additionally, earlier today, Nokia announced a broadening of our relationship for developing multiple generations of custom and multi-core ARM-based infrastructure processors for 5G. This partnership model allows customers like Nokia to integrate their unique technology into our programmable processor platform for customized product development. It enables our customers to focus their resources on differentiated technology while embedding that IP into the chipset, significantly accelerating their time-to-market using Marvell's other hardened components for base stations. Our flexible SoC architecture in Fusion products, which includes ARM and various DSP cores tailored to customer needs, maximizes performance through efficient interconnect. This programming model empowers our customers to differentiate their solutions based on their IP and algorithms. Alongside our Fusion solutions, our OCTEON multi-core ARM-based infrastructure processors also manage control and data plane processing. We're excited to grow our business with Nokia as they capitalize on the expanding 5G wireless infrastructure market. We expect to start shipping the first custom product later this fiscal year and are also commencing development of the next generation of infrastructure processors and custom SoCs. Beyond progress at multiple Tier 1 wireless customers with existing platforms, we are continually innovating and working with analog devices to combine their RF transceiver technology with our digital 5G platform, addressing the complexities in 5G radio units that require close collaboration between RF, mixed-signal, and compute domains. This collaboration improves size, power, and performance in increasingly complex radio units. Regarding the rollout of 5G, it significantly reduces the cost per bit of transmitting data wirelessly, benefiting carriers from an OpEx perspective while enhancing the consumer experience. We believe that for the next few years, overall wireless CapEx will remain similar to historical patterns, but the better economics of 5G will eventually transition spending away from legacy 4G technologies, driving significant revenue growth due to higher content and market share in 5G. Over time, we expect 5G to create new opportunities beyond handsets that could increase CapEx, representing upside potential. While both sub-6 gigahertz and millimeter wave deployments will see significant activity, we believe that the majority of 5G base station CapEx will focus on sub-6 deployment. An industry analyst predicts over 95% of the spend will go towards sub-6 deployment, and we expect our wireless infrastructure revenue to follow this trend, primarily deriving from macro base stations. However, as the small cell market develops, especially for millimeter wave applications, we are well-positioned to leverage our multi-core processor architecture, which can effectively address lower power and performance needs. Our platform also enables significant software reuse as our customers scale down their macro solutions. We offer a comprehensive set of capabilities for wireless infrastructure, including baseband, transport, Ethernet connectivity, and DFE ASICs, making us the ideal chip provider for small cells, which will require multiple functions integrated into a single chip or package. Technology shifts in this infrastructure business happen over several years, constrained by flat CapEx budgets. The transition to 5G is just beginning, with the majority of the opportunity still ahead of us. Korea is the only major region that began 5G deployments in earnest in 2019. While Korea is important for our lead customer, many of their base station shipments in 2019 utilized FPGAs for processing and only started transitioning to our solutions late in the year. We expect substantial revenue growth this fiscal year from Korean operators' deployments, which will continue for several years. Additional growth opportunities will arise as regions like Japan and the U.S. start their 5G deployments later this year. Historically, Marvell had limited exposure to the Chinese wireless infrastructure market, but with the Avera acquisition and our organic efforts, we are now better positioned to participate in China's 5G deployments. In summary, the wireless industry is converging on factors crucial for 5G adoption, including a mature supply ecosystem, advanced handsets and base stations, and the opening of additional spectrum, particularly in the sub-6 gigahertz bands. These developments, combined with the more favorable economics of newer technology, are driving carriers to reallocate CapEx toward 5G base stations, especially where they plan to activate 5G services soon. New 5G base stations will be backward compatible with 4G, allowing carriers to future-proof their networks and avoid ongoing spending on legacy technologies. Thus, we anticipate that wireless CapEx will accelerate toward 5G infrastructure. Shifting gears, we recently unveiled our next generation of ARM-based infrastructure processors, the OCTEON TX2 family, designed for various networking equipment such as switches, routers, secure gateways, firewalls, network monitoring, smartNICs, and base stations. This portfolio offers a 2.5x performance boost over the previous generation and can scale to 200 gigabits per second of packet processing, ranging from 4 cores at the low end to 36 cores for demanding applications. Compared to solutions that only process data on CPU cores, OCTEON's configurable and programmable hardware accelerators—with security, packet processing, and traffic management functions—deliver a superior balance of power and performance in networking applications. We have already commenced production shipments of our OCTEON TX2 processors to our lead wireless infrastructure customer. Our Ethernet switch and PHY products continue to secure new designs in target markets. Our Ethernet switch strategy has focused on expanding from enterprise campus positions into core, aggregation layers, and service providers. We leverage our strengths by offering feature-rich products rather than targeting high-speed sockets where a major networking OEM aims to offer internal ASICs to cloud customers. Our ARM server and automotive products also remain well-positioned for growth later this year. Looking ahead to the first quarter of fiscal 2021, our networking business is expected to grow sequentially by low single digits from fourth quarter results adjusted for the Wi-Fi divestiture. This growth will be led by new product launches in enterprise and cloud data center applications while expecting stable revenue from the wireless infrastructure market. This growth outlook accounts for negative impacts known from coronavirus-related issues. For clarity, our first quarter revenue projection for the continuing networking business is expected to decline in the low to mid-single digits sequentially, accounting for the five weeks of Wi-Fi included in fourth quarter results. Turning to our storage business, revenue for the fourth quarter was $296 million, growing 3% sequentially, exceeding our expectations. Growth was driven by increased demand for both storage controller product lines. Our HDD business benefited from growth in the nearline market, and our enterprise and data center SSD business showed recovery in the fourth quarter, offsetting anticipated declines in the client market. Our fiber channel business remains stable compared to the third quarter. At our previous investor days in 2017 and 2018, we outlined a storage strategy focused on the enterprise and data center market, reducing reliance on the client market. We anticipated client business to decline as SSDs and PCs took precedence, sharpening focus on the growing nearline market. Additionally, we shifted investment in SSD business towards higher-performing enterprise and data center solutions and DIY opportunities, moving away from commodity client markets where margins were less favorable and clients were increasingly in-sourcing controllers. Currently, we estimate that exposure to the client market, across both HDD and SSD controllers, is only 5% of total company revenue as fiscal 2021 begins, a significant decrease from client storage's 14% of total revenue at our Investor Day in October 2018. Our storage revenue growth in the third and fourth quarters of fiscal 2020 was primarily driven by our enterprise and data center products. The next phase of our storage growth strategy involves the emergence of the DIY market for custom SSD controllers, and we are approaching mass production of our first major design win. We expect to continue ramping our preamplifiers for HDDs over the coming years. Our recently launched 12-nanometer PCIe Gen 4 SSD controller is receiving strong interest from several customers, including NAND OEMs, due to its optimized blend of high performance and low power in a compact form. Our Ethernet-based storage solutions are gaining traction as we partner with leading ODMs Accton and Foxconn to market our Ethernet Bunch of Flash technology solutions. We demonstrated our NVMe over Fabric Ethernet SSD controller at FMS 2019, enabling a new data center architecture connecting SSDs through a switch to an Ethernet network directly, bypassing the need for a host. These EBOF platforms will start sampling in the spring and will incorporate Marvell's NVMe over Fabric SSD controllers, Prestera Ethernet switches, and up to 48 SSDs in one chassis. Overall, we believe the combined growth of our enterprise and data center storage controllers, preamps, forthcoming ramp of SSD DIY controllers, and progress on Ethernet-based storage initiatives position our storage business for sustained long-term success. For the first quarter, which is generally a seasonally down quarter in this market, along with virus-related impacts, we anticipate sequential revenue decline in the mid-single digits. I want to thank the more than 5,500 Marvell employees globally for performing excellently under challenging macroeconomic conditions. I'm looking forward to an exciting fiscal 2021, capitalizing on the various growth initiatives we've been investing in over the last few years. Fiscal 2021 also marks a significant milestone as we celebrate our 25th anniversary. This journey has been long and eventful, culminating in the company's transformation toward the infrastructure market. The financial community is aware of our journey, and we’ve started to share our story with a larger audience. We held our first industry Analyst Day in early December, and the response was outstanding. Feedback indicated that our story should be communicated more widely, as they see Marvell positioned amid multiple major trends, including 5G, AI, cloud, and connected vehicles. We will continue spreading this message and are scheduling our next Investor Day for October 6 in New York, providing updates on our progress towards long-term goals. I look forward to seeing many of you at that event. Now, I will turn the call over to Jean for more details on our recent results and outlook.

Jean Hu, Chief Financial Officer

Thanks, Matt, and good afternoon, everyone. As a reminder, our guidance for the fourth quarter provided on December 3, 2019, assumed a full quarter of results from the Wi-Fi business. Subsequently, we completed the divestiture of our Wi-Fi business on December 6, approximately five weeks into the fourth quarter. So our results reflect the partial quarter contributions from the Wi-Fi business. We then updated only our revenue guidance to reflect the closing of the Wi-Fi sale. Revenue in the fourth quarter was $718 million, better than our updated guidance of $710 million at the middle point. Networking represented 52% of our revenue in the fourth quarter and the storage contributing 41%. Revenue from our other business was $44 million in the fourth quarter below expectations and accounted for 7% of our revenue. As a reminder, this business consists of products such as printer solutions and application processes, we have stopped investing, so they will continue to decline over time. In fact, our guidance for the first quarter for fiscal 2021 anticipates a sequential decline in revenue in the high teens on a percentage basis from the other business. GAAP gross margin was 42.5%, which included the amortization of both Aquantia and Avera inventory step-up cost. Non-GAAP gross margin was 62.3% of revenue. Our gross margin results in the fourth quarter reflect the negative impact from certain one-time transition costs related to the Avera acquisition, as we discussed last quarter. GAAP operating expenses were $419 million. Non-GAAP operating expenses were $306 million. GAAP operating loss was $114 million. Non-GAAP operating profit was $141 million or 19.6% of revenue. During the quarter, to better align the global economic ownership of our intellectual property rights with our current and future business operations, we transferred certain intellectual property to our subsidiary in Singapore. This internal IP transfer resulted in an income tax benefit of approximately $763 million for the fourth quarter, which primarily captured the tax effect for future deductions in Singapore. In addition, the change in the tax structure will result in a small 50 basis point increase to our non-GAAP tax rate from 4.5% to 5%. For the fourth quarter, GAAP income per diluted share was $2.62, which included a gain from the sale of the Wi-Fi business and the income tax benefits related to the IP transfer. Non-GAAP income per diluted share was $0.17. Now turning to our balance sheet. Our long-term debt was $1.45 billion, declining from the prior quarter. During the quarter, we completed the divestiture of the Wi-Fi business and used the sale proceeds to pay off the $600 million bridge loan we entered into in connection with the Avera acquisition. And also, we paid off $350 million revolver we drawn to fund the Aquantia acquisition as well as $250 million of our term loan. We also resumed our share repurchase program and returned $340 million to shareholders through $300 million in share repurchases and $40 million in dividends. In fiscal 2020, we returned a total of $524 million in cash to shareholders. We exit the quarter with $648 million in cash and cash equivalents, an increase of $209 million from the prior quarter. Now moving on to our current outlook for the first quarter of fiscal 2021. Please note, we have built into the guidance a 5% reduction in revenue due to the risks associated with the coronavirus. Although the situation remains fluid and the ultimate impact is still unknown and assessing the magnitude at this point is not feasible. Given the ongoing uncertainty, we have also temporarily widened the guidance range on revenue. Specifically, we are forecasting revenue to be in the range of $680 million, plus or minus 5%. We anticipate our GAAP gross margin will be approximately 47.5%, and the non-GAAP gross margin will be approximately 63%. We project our GAAP operating expenses to be in the range of $410 million, plus or minus $3 million. We anticipate our non-GAAP operating expenses to be in the range of $310 million plus or minus $2.5 million. The sequential seasonal increase in payroll taxes and the reset of bonus accruals have been significantly offset by earlier than expected synergy achievement and disciplined OpEx management. From this high point in the fiscal year, we continue to expect our non-GAAP operating expenses will come down to approximately $300 million by the fourth quarter of fiscal 2021. We expect net interest expenses to be approximately $16 million and expect a non-GAAP tax rate of 5%. As a result, we anticipate a GAAP loss per diluted share in the range of $0.12 to $0.20 and the non-GAAP earnings per diluted share in the range of $0.11 to $0.17.

Operator, Operator

Our first question comes from Atif Malik from Citi.

Atif Malik, Analyst

A nice job on the results and guidance. And congratulations on the expanded Nokia relationship. Matt, the team has talked about a $750 million pipeline of site 5G infrastructure sales; $600 million across Samsung, Nokia and then $150 million from Avera, about 20% of the $4 billion opportunity. Can you just talk about with the new expanded Nokia relationship and then the Samsung collaboration, how is the team tracking to those numbers?

Matthew Murphy, President and CEO

Sure. Great. Thanks, Atif. Yes, I think you got it exactly right. Just for everybody on the phone, we started off with a base case that we outlined pre-Avera, which was $600 million, which included the pipeline that we had identified of one business at that point. We successfully closed Avera, which brought in numbers in that approximate range you mentioned about roughly half of that business was 5G exposed. And so the way I would think about it is that 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 our 5G solutions, multiple products that we're selling to those customers, and that actually layer in over multiple generations, including existing business we are shipping today, new product ramps happening this year. And then as you referenced, even on our announcement with Nokia, a multigenerational agreement where we have products ramping later this year, but then even ongoing partnership to do more in the coming years on a spectrum of products. So I think, overall, it's very positive and clearly represents the announcements we've made certainly a substantially higher number than what we've already communicated.

Atif Malik, Analyst

And as a follow-up, Jean, the 5% reduction from the virus, can you just talk about storage versus networking? Is it more storage-related than networking?

Jean Hu, Chief Financial Officer

Yes. So very high level, a lot of things are unknown. So our estimate right now is more like 40% is related to the storage side, 60% is related to the networking side. Matt can give you more color on the networking side. We have some part of business, which there's a component shortage that impacted our networking business. And the storage side, a similar thing. Our customers, they have some supply chain disruption, so that's what we know right now.

Matthew Murphy, President and CEO

Yes. To summarize, we've attempted to assess the impact as accurately as possible. As Jean pointed out, there are two main types of disruptions in our supply chain: the first involves some of our products, primarily integrated circuits, although we also have some board business, including Ethernet NICs and host bus adapters for fiber channels, as well as some board-level products for smartNICs. Even though our suppliers are located outside of China and the affected regions, they are facing challenges in sourcing certain components. That's one aspect of the situation we are managing. The second aspect is that many of our end customers' factories or subcontractors are not operating at full capacity. It's a changing situation. Currently, our focus is on evaluating the supply chain-related impacts that affect both us and our customers.

Operator, Operator

Our next question comes from the line of Vivek Arya from Bank of America.

Vivek Arya, Analyst

Matt, my first question is on 5G. So the opportunity on the base station side, I think, has been clear, and you’ve articulated that very well. I wanted to ask on the radio side. What’s the opportunity to leverage this kind of beachhead you have with Avera? And I think recently, you also announced a partnership with Analog Devices for some integrated radio solutions, and there’s obviously a lot more radios, heightened complexity on that side and perhaps the chance to displace more FPGAs. So talk to us about the radio opportunity for Marvell in 5G.

Matthew Murphy, President and CEO

Sure, thank you. We definitely see significant opportunities in both the base station and radio head sectors. We've started to mention this in previous calls and in my comments today. For instance, with Samsung, we're implementing customized solutions within the radio head, enhancing our processing capabilities by integrating them more into the radio head from the base station unit. This shift towards placing more processing power closer to the antenna is a notable trend. Additionally, in some initial 5G deployments, particularly in Korea, we've observed a high density of massive MIMO radio heads connected to each base station. This combination of increased processing power in the radio head and a greater number of radio heads per base station presents a substantial opportunity, which we recognize is not limited to just one customer, making it quite exciting. Furthermore, regarding our collaboration with Analog Devices, we are beginning to align our efforts in applications related to our DFE business and other customized solutions within massive MIMO. Analog Devices holds a leading position in the RF transceiver and data converter markets, while we excel in the DFE, which connects digital chips with analog and mixed-signal functions. The integration of our strengths is increasingly important, raising questions about how we can effectively co-package products, align chip interfaces for optimal communication, and explore the best architectural approaches. Given the complementary nature of our offerings, we see a fantastic opportunity for collaboration that allows us to innovate together and deliver tailored solutions for customers seeking to differentiate their products. The ADI team brings immense expertise in this area, and our own experienced team of architects and technologists supports this collaboration. Ultimately, we're equally enthusiastic about the radio head opportunities as we are about the entire base station ecosystem.

Vivek Arya, Analyst

Got it. And for my follow-up, Matt, thanks for the color on the storage side. I think you mentioned client is now only about 5% of that business. I forgot whether you mentioned it just for storage or of the entire company. But my question really is, what is the right way to think about your storage business on a 2- to 3-year basis? Is it still kind of a flattish business? Is it a low single-digit growth business? What is the right conceptual way to think about the storage business for Marvell?

Matthew Murphy, President and CEO

Yes, to clarify, the 5% figure I provided pertains to the entire company. For those who have been with us since the start of our journey, this percentage was likely around 30% or 40% back in 2016, so we have made significant progress. The year 2019 likely accelerated some of the transitions that were already underway. Looking ahead, we are excited about our growth drivers. A couple of years ago, we shifted our engineering focus toward the nearline and enterprise markets for cloud capacity. We believe that demand for these types of drives will continue to grow, and we have strengthened our position both on the controller side and through the addition of preamps, which will drive further growth. In the SSD sector, we have transitioned from supplying basic client controllers to NAND OEMs to developing advanced products designed for applications like Ethernet-attached storage and collaborating directly with end OEMs to create custom SSD SoCs. This trend has been promising, and we anticipate revenue growth from these initiatives. Although there has been a decline in the client segment, particularly in HDD, we expect some ongoing changes as PCs evolve. We view this business as having the potential to grow modestly, but we believe maintaining growth in the low single-digit range is a realistic goal. Given the strategic importance of this business to Marvell and its profitability profile, we feel we have struck the right balance between investment and growth for this segment.

Operator, Operator

Our next question comes from the line of Tore Svanberg from Stifel.

Tore Svanberg, Analyst

Yes. Congratulations on the strong results. First of all, coming back to the radio head opportunity. Obviously, it depends a lot on the kind of MIMO architecture, but should we think of content here kind of being in the several hundred dollars range? If you could just add some color there, that would be great.

Matthew Murphy, President and CEO

We currently have a presence in radio head across various applications. Some of these are based on DFE, and we've noted that several customers have begun using our Fusion-based products for massive MIMO processing as they shift towards more tailored solutions. These products represent large, advanced node digital chips. While we won't specify the average selling price, they are clearly high ASP devices, generally in the $100-plus range, and can go higher depending on complexity and volume. These are standard large digital chips. Additionally, your background suggests you are well aware of the analog market and the total addressable market it represents. You also recognize the interdependencies between both markets and their importance in system design. Ultimately, it’s about collaboration between the two companies to create mutually beneficial opportunities. So yes, in terms of ASPs, these are larger digital chips.

Tore Svanberg, Analyst

Very good. And as my follow-up, you've talked in the past about the programmable approach really creating a lot of stickiness for you in your design wins. As we look at these next partnerships that you've announced, especially the additional one with Samsung and also with Nokia, should we think about that, that stickiness still prevailing in a pretty meaningful way?

Matthew Murphy, President and CEO

Very much so, and I would argue that was one of the key technical value props that we've been able to deliver. I think if you sort of think about this OCTEON-based architecture based on ARM present at all hops within the base station, whether it's massive MIMO processing in the radio head, whether it's the transport processing for layer 2, whether it's the baseband processing, it's very efficient when a customer actually goes all in with us. And certainly, these designs by nature are quite sticky because these base station designs are quite complex. It's not a second source business. Once you get in, they last a long time. But clearly, that's one of the key differentiators that our processor team has delivered consistently for five generations now of product. So that's absolutely how you should think about it.

Operator, Operator

Our next question comes from the line of Blayne Curtis from Barclays.

Blayne Curtis, Analyst

Great results. I'm curious about 5G, particularly regarding networking. Can you provide an update on the enterprise channel and its progress towards sequential and year-over-year growth for the remainder of the year?

Matthew Murphy, President and CEO

In 2019, during the trade war, we noticed that many of our enterprise OEM customers faced challenges, which was reflected in our results over several quarters. However, after the signing of the Phase I deal, we observed a stabilization of the situation, and we experienced strong order and bookings momentum in Q4. As the situation improved, we saw a solid recovery in our core business, which had been performing well before the trade war, including six consecutive quarters of double-digit growth prior to the 2019 pause. We were pleased to see that growth returning, along with stabilization. Although we are now facing the coronavirus situation, it has not impacted our long-term outlook, especially as we anticipate continued new product rollouts later this year. An example is our integration of Aquantia's multi-gate technology with our Prestera switches, which aligns with the growing trend of multi-gig. We've also gained new customers in both the PHY and switch segments over the past few years, which we believe will yield positive results. Additionally, our automotive Ethernet business, while currently smaller, is experiencing quarter-over-quarter growth and is expected to accelerate as we move from calendar '20 to model year '21, with many vehicles we designed for starting to ramp. I'm pleased to discuss networking, as it's a significant and vital part of our business with promising growth drivers, in addition to our strong 5G opportunities.

Blayne Curtis, Analyst

And then just maybe a quick one for Jean. It looks like you did a combination of buybacks and retiring debt. Just how are you thinking about use of cash? And are you going to retire any more debt going forward? Any help there will be great.

Jean Hu, Chief Financial Officer

Yes. Our primary goal is to invest in the business after finalizing two acquisitions and one divestiture. Currently, we have shifted our focus to returning excess cash to shareholders through buybacks. While we are committed to maintaining our investment-grade rating, we believe we can generate enough cash flow to accomplish both objectives. Thus, our priority is to return cash to shareholders, and we will pay down debt over time.

Operator, Operator

Our next question comes from the line of Ross Seymore from Deutsche Bank.

Ross Seymore, Analyst

Congrats, especially on the guide. Going back to the 5G side of things, Matt, maybe a clarification before a question. The Nokia announcement from today there's been a lot of investors debating whether that's just a formalization of the formerly unnamed second customer or an expansion. And I guess the question is, if it is the latter side in an 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 5G discussion earlier.

Matthew Murphy, President and CEO

Yes, Ross, I can clarify about Nokia. We are very excited to publicly announce this partnership, which makes it easier for us to discuss. Our experience with Nokia has been excellent so far, and we are impressed with their team. Together, we have successfully executed our first product. This announcement signifies an expansion of our relationship and the opportunities within our existing program, which includes multiple generations of products and greater integration with their offerings. Additionally, it highlights collaboration on embedded processing with our multi-core OCTEON family. This represents both broadening and expansion for us, and it's a significant development. We are fully committed to ensuring their success, and we see this as strong validation of our strategy and the investments we've made over the years. It's rewarding to witness this progress. However, we know there is still a lot of challenging work ahead as these are complex chips for demanding applications. We feel privileged to work with Nokia, and having an expanded set of opportunities with them is very advantageous.

Ross Seymore, Analyst

Thanks a ton for that clarification. And then my follow-up would be one for Jean and it would 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. Tons of puts and takes on mix businesses that you sold coming out, etc. 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?

Jean Hu, Chief Financial Officer

Thank you for the question, Ross. To provide a broad overview, if we look back at Q3 fiscal '20, our gross margin was 63.5%, which included Wi-Fi but not Avera, at a time when our revenue was near its lowest point. Our gross margin is influenced by two main factors: product mix and revenue levels. Once we finalize all transactions, including Aquantia, Avera, and the Wi-Fi business, we can see that Avera and the Wi-Fi business share a similar financial profile, with revenue and gross margins around 50%. Currently, the key driver for our product mix in the near term suggests our gross margin will return to the 63% to 64% range. Looking ahead, we are confident in our ability to maintain a strong gross margin, particularly in our wireless infrastructure, as gross margin reflects the intellectual property value we offer to customers. We have a unique value proposition across all our product lines and platforms. As revenue increases, we will also benefit from the growth at the company level. In summary, we anticipate a gross margin of 63% to 64% in the near term, and we remain optimistic about sustaining strong gross margins in the long run.

Matthew Murphy, President and CEO

Yes, I'd like to add that regarding Avera, there are a couple of additional points to mention. The team is very focused on that specific segment, and we noted last quarter that there were some margin-related transition impacts when we moved the business over. A significant amount of work is being done to enhance that gross margin. Additionally, while the revenue levels and gross margins for Avera and Wi-Fi may seem similar, the operating margin profiles differ quite a bit. We have consciously considered this and are comfortable with Avera, as that business includes NRE funding for projects, which helps offset R&D costs. Therefore, it offers a fundamentally higher operating margin. Furthermore, Avera targets a much larger serviceable addressable market than Wi-Fi, and we believe it has a much greater growth potential aligned with the company over time. Those are my additional comments on Avera.

Jean Hu, Chief Financial Officer

Yes. Our long-term objective, of course, is to drive profitable growth, right, and margin pool expansion in the longer term.

Operator, Operator

Our next question comes from the line of Gary Mobley from Wells Fargo Securities.

Gary Mobley, Analyst

Wanted to go back to the Nokia topic and delve a little bit deeper into Ross' question. When you're sizing up the opportunity for 5G you're roughly citing $600 million in potential peak opportunity, I think what perhaps was underpinning the Nokia assumption was that you will split that ASIC business and their implementation in the ReefShark architecture three ways, maybe two other ASIC suppliers as well. The way I read today's press release is that maybe you have some exclusivity with Nokia and perhaps better-than-expected market share at Nokia. Am I reading that correctly?

Matthew Murphy, President and CEO

The best way to interpret this is to understand that the companies have formed a long-term collaboration and partnership that spans multiple generations and products. We believe this will be beneficial for Marvell, leading to increased business for us over time if we execute well and demonstrate our value, which will also benefit them due to the nature of the solutions we provide. As Nokia continues to transition more of its business to 5G, it becomes increasingly important for them, and we aim to be a key part of that process, which will aid us in gaining more content. This relationship is extensive, involving new products, and our teams are collaborating effectively. This is a multi-year endeavor, and as 5G gains traction within the industry and for Nokia, we should see significant benefits from this rollout.

Gary Mobley, Analyst

For my follow-up, I don't think there was any mention about ThunderX2 in the prepared remarks or in the Q&A. So maybe you can just give us an update on where you stand with respect to timing and perhaps the magnitude of your first big marquee design win there for ThunderX2?

Matthew Murphy, President and CEO

Sure. I did have that in my prepared remarks, but they were a bit longer than usual due to the challenges with COVID and the various 5G developments. I apologize for that, but it was included. We mentioned that our ARM server program is on track to ramp in the second half, as we have previously indicated. There hasn’t been a significant change in that regard, and it remains consistent with our earlier communications. That’s all I can share for now; we are continuing to collaborate closely with our lead customer, and we anticipate that they will ramp us in the second half.

Operator, Operator

Our final question for today comes from the line of Harlan Sur from JPMorgan.

Harlan Sur, Analyst

Nice job on the quarterly execution. As NAND storage kind of finds its way into new applications such as gaming, I think, you guys have good exposure to this upcoming game console refresh cycle, partnered up with one of the leading SSD suppliers. Does the ramp for you here on the SSD controller side start here in the April quarter? Or is it more likely the 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 design win?

Matthew Murphy, President and CEO

Yes, Harlan, I agree with your points. NAND flash is indeed making strides into new applications and is starting to replace traditional storage media. This is one of the examples you mentioned. So far, we believe that this transition in the market will be beneficial for Marvell. However, there is a lot of confidentiality and sensitivity regarding that specific market. Overall, I am confident that this transition will be a positive outcome for Marvell.

Harlan Sur, Analyst

Absolutely. And then on the networking side, on the strength of the networking business outside of 5G, specifically on the service side, your lead customer partner here, Intel has seen strong growth in their server business into data centers. And I believe that Aquantia had a strong partnership with Intel on the service side. And I think that core Marvell side, you guys also have some strong PHY and NIC partnerships with Intel as well on servers. Is this server exposure, driving some of the networking strength here in the April quarter, just given the strong demand outlook for this part of the market?

Matthew Murphy, President and CEO

Yes, I think you're right. Both Aquantia and Marvell have had partnerships with Intel for some time. The networking strength we observed in bookings for Q4 and our outlook for Q1 was broad-based. However, the dynamics you mentioned, particularly the server recovery and growth, were quite strong and certainly benefitting both Aquantia and us on the NIC side.

Operator, Operator

Our final question for today comes from the line of John Pitzer from Crédit Suisse.

John Pitzer, Analyst

Thanks for sneaking me in. Matt, I guess my first question is just on the radio opportunity. I'm just kind of curious, how do we think about kind of the timing to sort of meaningful revenue? And you guys have been doing stuff pre to collaboration with ADI or at least the announcement. Is the ADI stuff later on as we think about the radio opportunity? And of the $750 million kind of outlined for 5G, how do we think base station versus radio head? And then I have a follow-up.

Matthew Murphy, President and CEO

Yes, I think the way to think about it is the announcement with ADI was really a desire for us to just make the market aware, all the stakeholders in the ecosystem, that the two companies, the teams were working together. We are already sort of jointly getting pulled into things, so I wouldn't sort of tie an ADI engagement to a new design win per se. I would say that we're 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. But as I mentioned, as far as silicon for radio head, we have Fusion-based processors, right, that are 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 digital front-end ASIC-related content. So there's actually quite a bit that's going on there. So I would just think of it as an ongoing trend that we will see both growth in the digital unit as well as the radio heads. And to the extent that massive MIMO influx, and it becomes a major trend globally, and you think about the out years as our content grows both in the DUs and the radio heads, we think it just adds to the opportunity for Marvell. Certainly, more attach of massive MIMO means more capacity, more users, more silicon and more chips, and that's all the positive for us. So I don't think we have a split right now of like how do we think about how much is in where. And quite frankly, those lines, John, are blurring because a lot of the new standards from 3GPP in terms of the splits and where does the processing and the files actually sit, in what part of the network, in what part of the base station unit, it's fairly dynamic. And they have things like O-RAN coming, which is also defining a new way of doing processing. So a lot of diversity in the applications. We think we're well suited for all of them. But probably more to come on that as we go forward with our different engagements we're pursuing.

John Pitzer, Analyst

That's helpful. And then, just to have my follow-up, I want to go back to kind of your guidance around the coronavirus and caveat it by saying, I appreciate the fact it's very fluid and any question I ask is going to be best guess. But I just want to make sure I understand the 5% cushion in the April quarter is what you’ve already seen. The wider range is the uncertainty and you've characterized 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, and week on week things are getting better. Is that not putting words in your mouth? Is that how you would sort of describe the situation to date?

Matthew Murphy, President and CEO

Sure, let me break it down into two parts. First, you’re correct. The initial 5% figure represented our adjusted estimate, which we lowered to $680 million, down about 5% from our prior expectations before the pandemic, particularly with our Q1 projections. We arrived at this adjustment by carefully analyzing the changes from our original guidance, focusing on the factors impacting our outlook. As you pointed out, the current issues are primarily related to the supply chain. We cannot determine if there has been any disruption in demand, where it may arise, or what the current status is. This uncertainty remains. Additionally, regarding the plus or minus 5% range, that's separate; it simply reflects that at the midpoint, we usually provide a plus or minus 3% guidance. Due to the current volatility, we felt it necessary to expand the range. I want to emphasize that while we observe reports indicating factories are slowly resuming operations and people in China are gradually returning to work, the broader impact on the global economy from this disruption is still unclear. This lack of clarity is why we and others in the industry are cautious in assessing potential changes in demand. We are uncertain about how this will unfold in the upcoming quarter.

Operator, Operator

Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Ashish Saran for any further remarks.

Ashish Saran, Vice President, Investor Relations

Thank you, everyone, for joining us today, and we look forward to speaking with you next quarter.

Operator, Operator

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.