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Marvell Technology Group Ltd (NASDAQ:MRVL)
Q1 2020 Earnings Call
May 28, 2020, 4:45 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by and welcome to Marvell's First Quarter Fiscal Year 2021 Earnings Call. [Operator Instructions] I would now like to hand the conference over to your speaker, Vice President of Investor Relations, Ashish Saran. Sir, please go ahead.

Ashish Saran -- Vice President of Investor Relations

Thank you and good afternoon everyone. Welcome to Marvell's first quarter fiscal year 2021 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 that could cause our actual results to differ materially from management's current expectations. Please review the 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. Matt?

Matt Murphy -- President and Chief Executive Officer

Thanks, Ashish, and good afternoon everyone. During the first quarter of fiscal 2021, we delivered strong financial results and achieved $694 million in revenue, $14 million above the midpoint of guidance. As you may recall, our revenue guidance for the first quarter included an assumption for a 5% headwind from COVID-19. We did, in fact, experience some impact on revenue from COVID-19 related issues, but stronger-than-expected demand from our datacenter and 5G infrastructure end markets and our networking business drove consolidated company revenue above the midpoint.

Compared to our assumptions, when we provided our revenue guidance for the first quarter, the impact of COVID-19 turned out to be greater than expected in our storage business and lower than expected in our networking business. Our GAAP loss per share was $0.17. Our non-GAAP earnings per share was $0.18, above the high end of our guidance range, driven by higher revenue and tight opex control.

On a sequential basis, revenue declined by 3%. However, compared to the fourth quarter results, adjusted for the divestiture of Wi-Fi, revenue for the ongoing business was actually flat on a sequential basis, a very solid result under current conditions and in what is typically a seasonally weak quarter.

I'm extremely pleased with our team's ability to deliver great results despite the massive disruption from the COVID-19 pandemic. The vast majority of our employees have been working from home since early March, earlier than most official shelter-in-place orders were announced as the health and welfare of our employees and their families was our first priority. Our IT team quickly jumped into action to provide secure, remote access for our 5,000-plus employees. Our worldwide operations group battled through a number of supply chain challenges and met the upside in demand in our networking business. Since the start of work-from-home, our engineering team has taped out eight new chips, an extremely high level of engineering output in this time frame, on schedule to meet our customers' critical time lines. Our sales team maintained a strong focus on customer communication through this critical time period and continue to drive our growing design win funnel.

I have personally experienced a much higher level of direct engagement with the leadership at multiple key customers at the CEO level. Normally, I fly out and meet my counterparts in person a few times a year. But during this crisis, we have quickly adopted virtual meetings over video to increase the frequency of communication. We believe the change in cadence reflects our customers' desire to involve us deeply as a trusted partner in solving the need for higher bandwidth and storage in the post-COVID-19 world.

Our mission as an infrastructure semiconductor solution provider to move, store, process and secure the world's data has never been more relevant, and we are seeing strong demand drivers for our products and technology. I truly believe that the culture we have created at Marvell is enabling our success and has earned us the trust of our employees, customers and partners, and our new brand reflects these values.

Celebrating the company's 25-year anniversary, we recently launched Marvell's new brand identity, marking a milestone in our transformation to focus on semiconductor solutions for data infrastructure. This was something we had considered doing soon after we started to pivot the company in the fall of 2016. But as you know, a company's brand is their reputation and a reputation is earned. So instead, we focused first on creating our new strategy, revamping our culture, building operational excellence and delivering business results. After four years of hard work, we were ready to reveal a new brand that mirrors our culture, which focuses on the substance first. Our brand is built on a foundation of collaboration and partnership with our customers, and we are driven by the belief that doing things the right way matters. Essential technology, done right, reflects our customer-centric approach to high-quality tailored solutions.

None of this would be possible without our dedicated employees who have been putting in a lot of extra hours through this unusual period, which is likely to persist for a while. Recognizing this challenge, we are giving all employees a few extra days off, and we are shutting down for a four-day recharge weekend in mid-June. Similarly, we have taken steps to help our contractors and the local community. We are continuing to pay our hourly workers in full, as well as the service providers that support our facilities, regardless of whether they can fully perform their duties. In addition, Marvell has started a COVID-19 relief fund to support our global communities and provide financial relief to those in need. A portion of the fund is dedicated to matching employee donations so that employees will also have the opportunity to participate. Until we are able to return to the office in Santa Clara, we plan to donate our entire cafeteria grocery budget to the Second Harvest Food Bank in support of those in need. It is in times of crisis that our values and leadership principles are truly tested. I'm proud of our team and the company we have built. We are in a fortunate position of being able to take care of our people and give back to our communities when it really counts.

During and after this crisis, we expect the demand for bandwidth to continue to grow stronger. Major cloud and service providers are facing unprecedented demand for their services as a result of so many people working from home and are scrambling to add capacity to their networks. 5G has become a strategic priority for many nations and also an economic growth driver for economies worldwide. Enterprises are rapidly upgrading their networking infrastructure to support their workforce with remote access to critical business applications and advanced collaboration tools in a secure and scalable environment. We are in the midst of enabling all the key megatrends in 5G, datacenter cloud, enterprise and automotive as a leading supplier of data infrastructure semiconductors.

Over the last few quarters, we have discussed in detail our progress in the carrier market tied to the transition to 5G. Investor focus has been high in this area, and I'll provide color on this opportunity in a few moments.

For now, I'd like to draw your attention to the cloud datacenter market, which represents an opportunity for our storage and networking products, similar in magnitude to 5G. This is in addition to our ARM server opportunity, which we have previously outlined as a large multi-billion-dollar market for us. We've been working on building our business through organic investments over the past four years, as well as through products and engagements via the Cavium and Avera acquisitions. We are now starting to see the benefits from these efforts, and I'm excited to share them with you.

In our storage business, over the last few years, we have been transitioning our HDD business to focus on near-line drives, which are primarily consumed by cloud datacenters, and this business has been growing nicely for us through both our storage controllers and pre-amplifiers. We expect that the 16-terabyte transition this year will drive strong growth for us. Our custom flash controllers are very well suited for cloud customers, who have unique storage applications and are looking to disaggregate their SSDs to optimize performance, and we pioneered the do-it-yourself model. We also have storage accelerators in evaluation at multiple cloud customers. In virtualized environments and cloud datacenters, multiple customers could be accessing the same physical storage resources simultaneously. To ensure quality of service, expensive CPU cycles are consumed in managing workloads to ensure that all clients get uninterrupted access to their stored data. Our NVMe storage accelerators enable a better solution by offloading storage IO and freeing up CPU cycles, provisioning bandwidth and ensuring low latency to satisfy service level agreements, which are difficult to achieve with software-only solutions. We expect to see initial production ramps for our storage accelerators starting later this year.

In our networking business, our OCTEON compute platform is ideally suited for a variety of offload and acceleration applications in hyperscale datacenters. At GTC 2020 last week, Jensen Huang referred to this category of computing as the DPU, or Data Processing Unit, and indicated it would represent the third major pillar of computing in hyperscale datacenters after the CPU and GPU. We couldn't agree more. OCTEON is an ideal DPU platform as it is an SoC that combines a scalable multi-core ARM processor with high-performance networking and a variety of hardened acceleration engines. As many of you know, Cavium was a pioneer in this area and we have continued investing in this segment since the acquisition.

Our recently announced OCTEON TX2 was specifically designed for cloud applications, such as our LiquidIO programmable smartNIC and LiquidSecurity HSM or Hardware Security Module product lines. Cloud infrastructure requires optimized hardware for performance, cost and power at scale. Datacenter operators can achieve these goals by moving specific workloads on to highly optimized offload engines, leaving the host server to run more efficiently. Our LiquidIO smartNICs offload network virtualization, storage protocols, security, distributed firewall, software-defined networks and network overlay for various cloud datacenter models. Our latest LiquidIO smartNIC incorporating OCTEON TX2 is ramping now as cloud provider demand is surging. Our LiquidSecurity HSM, which have been adopted by multiple leading cloud providers to provide fully managed cloud-hosted protection for cryptographic keys and Crypto-as-a-Service are also ramping. Last year, we announced deployments with Amazon, Google and Oracle, and I am pleased that we have recently added another large Tier 1 cloud customer.

Our ARM-based server processors have been qualified at Microsoft for internal Azure development workloads, and we are looking forward to broader adoption in production environments. Our ThunderX3 processor will become available later this year, and we continue to engage with additional cloud providers on our solutions.

The Avera acquisition brings to us leading-edge custom chip design capability, which continues to become more relevant as hyperscalers seek to differentiate and control their own key pieces of silicon. They have very specific needs, and we can combine our leading intellectual property with their own unique IP to most efficiently solve the most complex system design challenges. As these customers continue to design their own silicon, they need a reliable ASIC partner that they can count on for the long haul. Avera was already shipping into the cloud market when we acquired them, and they brought over additional cloud design wins, which have yet to go into production. The level of engagement with hyperscalers has also continued to grow after we completed the acquisition, and we are seen as a very attractive choice for next-generation design decisions. Collectively, we are now building a strong cloud franchise, combining our storage, networking and processor technology and have the unique ability to deliver products with standard, custom and semi-custom solutions.

I'm pleased to report that for the first time, we estimate that our revenue from the cloud market exceeded 10% of total company revenue, growing from a fairly small position at the same time last year. We expect that this business will continue to grow with that end market and our own unique product cycles and become another key growth driver for Marvell.

Let me now move on to discussing our two businesses in more detail. First, in our networking business, revenue during the quarter was $394 million and grew 5% sequentially, significantly above our expectations for a low-to-mid-single-digit decline. Compared to fourth quarter results adjusted for the divestiture of Wi-Fi, growth for the continuing networking business in the first quarter was in the double-digits sequentially, and I'm thrilled with this result. Excellent supply chain execution allowed us to meet strong demand from cloud datacenters for our smartNICs and security adapters that I discussed earlier. Our 1-gig and 10-gig PHY products experienced robust demand from enterprise datacenters as companies continue to upgrade the core of their network operations to deal with higher security and throughput demands.

Our wireless infrastructure business grew sequentially and performed better than our expectations of a flattish quarter, in strong contrast to the pause or slowdown in 5G deployments, mentioned by a number of industry peers for the same time period. We are benefiting from the start of the 5G build-out in China, where we have contents through two of our key customers, who collectively have been awarded about 50% of the share of recently announced contracts. We are currently supplying custom ASICs and standard connectivity products to these customers and are working with them on additional opportunities.

In addition, we have a very strong position at Samsung, where we have just started to ship our full suite of solutions and expect that their success in Korea, Japan and the U.S. to drive growth in the coming year. Our custom baseband solution for Nokia is progressing very well through qualification, and we expect to start production later this year. Collectively, we are designed into the latest generation of base stations into multiple OEMs, which are expected to be powering all key geographies over several years. We are still at the very beginning of the industry transition from 4G to 5G and look forward to driving significant revenue growth from this end market.

Demand from the enterprise campus end market remain stable on a sequential basis, a good outcome under current market conditions. When we start to come out of the COVID-19 crisis, we are looking forward to the deployment of Wi-Fi 6, which requires higher speed Ethernet connections. We expect this adoption will drive growth for our multi-gig Ethernet products as we have a very strong design win position across most leading OEMs for enterprise Wi-Fi access points. And we also have a strong position on campus switches, which aggregate traffic from these access points.

We recently taped out additional products from our recently announced OCTEON TX2 family of ARM-based infrastructure processors, including our flagship highest performance solution, featuring 36 cores, which can deliver up to 200 gigabits per second of packet processing for the most demanding applications. We also taped out our Fusion-based processor customized for massive MIMO applications for our leading wireless customer, ahead of schedule. Our customer will be using this solution in their high-volume massive MIMO SKUs, and we expect to be ramping into production in the fall.

The design win funnel for OCTEON processors is continuing to expand with a broad set of Tier 1 networking and high-end security firewall OEMs. The OCTEON platform is an extensive ARM-based embedded processor product family, which can scale from 4 cores at the low end to 36 cores on the high end, all on a common software framework. This is a critical advantage for Marvell when engaging with Tier 1 networking OEMs who want to partner with solution providers able to support their broad range of products, allowing massive software reuse. We are deep into the development already of our next-generation OCTEON family based on advanced node process technology. The combined strength of our recent OCTEON announcements and aggressive road map is resonating very well with key OEMs.

In our emerging automotive business, there are encouraging signs that auto production is restarting in multiple geographies. And as this happens, we expect to start ramping Ethernet switches and PHYs in the second half of our fiscal year for the designs we had won in model year 2021 vehicles. We expect to grow our automotive footprint over the next few years through our Ethernet connectivity products, but we see an even bigger opportunity for Marvell as cars continue to evolve toward becoming truly connected platforms. Traditional point-to-point solutions in cars are heading toward zonal architectures, very similar to modern enterprise networking, where end points connect to centralized compute and storage resources over a secure Ethernet backbone. We believe that we have all the pieces in place to be a leader in the market for this evolution. Low-power and high-performance ARM-based embedded processors, proven security IP, automotive-grade gigabit and multi-gigabit ethernet connectivity, advanced storage technology and a solution delivery model, which can span from standard products to full custom. We will discuss this broader initiative in more detail at our Investor Day in October.

Let me now discuss the outlook for our networking business. After a very strong first quarter, we expect our networking business to continue to grow in the second quarter of fiscal 2021 and project revenue to increase in the low-single-digits sequentially. We expect this growth to be driven by 5G wireless infrastructure deployments in our carrier end market. Looking out to the third quarter, based on our recent bookings and firm backlog position, we expect our 5G business to continue to ramp strongly.

Turning now to our storage business. Storage revenue for the first quarter was $259 million, a double-digit sequential decline, worse than our expectations for a mid-single-digit decline. This was due to multiple manufacturing facilities in Southeast Asia coming under new shelter-in-place orders in connection with COVID-19 as the quarter progressed, impacting production of fiber channel adapters and hard disk drives. Our SSD controller business, in contrast, remained resilient and grew sequentially, driven by higher shipments into datacenter applications.

Looking to the second quarter, we expect our storage business to start to recover from COVID-19 impacts on the supply chain, although a full recovery is more likely in our third quarter. We have started initial shipments of our custom SSD controllers for system-level applications in our second fiscal quarter. As a result, we are projecting storage revenue growth of approximately 10% sequentially for the second quarter. This custom SSD controller is based on our new PCIe Gen4 architecture and was developed in close collaboration with our customer to create a storage controller uniquely tailored to their application. I'm very pleased with our strong engineering and operations execution, which has enabled us to start early shipments to meet our customers' production schedule. We expect the storage controller to ramp into high volume in our third fiscal quarter.

In closing, we have a strategy focused on semiconductor solutions for data infrastructure. The critical nature of that infrastructure became even more evident during the current crisis as it keeps people connected, businesses running and information flowing. Our pivot-to-data infrastructure wasn't an accident and is a direct result of our decisive strategic portfolio actions over the last four years. Our strategy is in place. We are executing well, and we have the right team and technology to exceed our customers' expectations.

Our booking and backlog trends are very healthy, especially in 5G, cloud and custom SSD and support our expectations of driving overall company growth beyond the second quarter. We, of course, will continue to closely monitor demand signals from our customers in this uncertain environment. We remain confident in our ability to continue to benefit over the long term from the macro trends I outlined during this call.

With that, I'll turn the call over to Jean for more detail on our recent results and outlook.

Jean Hu -- Chief Financial Officer

Thanks, Matt, and good afternoon, everyone. I'll start with a review of our financial results for the first quarter and then provide our current outlook for the second quarter of fiscal 2021.

Revenue in the fourth quarter was $694 million, above the middle point of our guidance. Networking represented 57% of our revenue in the first quarter, with storage contributing 37%. Revenue from Other accounted for 6% of our revenue. As a reminder, this business consists of products such as printer solutions and application processors that we have stopped investing, so we expect they will continue to decline over time. Our guidance for the second quarter anticipates an approximately 20% sequential decline in revenue for these products.

GAAP gross margin was 47.1%, which includes the amortization of both Aquantia and Avera inventory step-up costs. Non-GAAP gross margin was 62.8% of revenue and it reflects the change in product mix compared to our expectations, as Matt discussed earlier. GAAP operating expenses were $423 million. Non-GAAP operating expenses were $300 million, lower than expected, primarily because of our continued focus on opex management and the lower travel expenses due to the COVID-19 impact. I'm pleased that we were able to get to our target for non-GAAP operating expenses three quarters earlier than expected, and we currently intend to manage opex at this level through the rest of the fiscal year.

GAAP operating loss was $96 million. Non-GAAP operating profit was $136 million or 19.6% of revenue. For the first quarter, GAAP loss per diluted share was $0.17. Non-GAAP income per diluted share was $0.18, above the high end of our guidance range.

Now turning to our balance sheet. During the quarter, cash flow from operations was $176 million. We returned $65 million to shareholders through $25 million in share repurchases and $40 million in dividends. We temporarily suspended our share repurchase program midway through the first quarter as we believe it's prudent to further strengthen our liquidity and increase our cash balance during the uncertain environment. We'll continue to evaluate business conditions to decide when to restart the share repurchase program. We exited the quarter with $660 million in cash and short-term investments. And we have $500 million liquidity available from our undrawn revolver. Our net debt-to-EBITDA ratio was 1.2 times on a trailing 12-month basis.

I'm very pleased with our solid financial performance in the first quarter under the current environment. We achieved this result by building a strong business model to focus on the growing opportunities in the infrastructure market and continuing to be very disciplined in operating our business to focus on return on investment, while keeping ample liquidity and low debt leverage ratio. Our performance also underpins our strong investment-grade credit profile, which provides us with significant financial flexibility to invest in our long term growth initiatives, so we can emerge from this uncertain time even stronger.

Now moving on to our current outlook for the second quarter of fiscal 2021. We are forecasting revenue to be in the range of $720 million, plus or minus 5%. We anticipate our GAAP gross margin will be approximately 50.6%, and our non-GAAP gross margin will be approximately 63%. We project our GAAP operating expenses to be approximately $393 million. We anticipate our non-GAAP operating expenses to be approximately $300 million. We expect net interest expense to be approximately $15 million and expect non-GAAP tax rate of 5%. As a result, we anticipate GAAP loss per diluted share in the range of $0.02 to $0.10 and non-GAAP income per diluted share in the range of $0.17 to $0.23.

Operator, please open the line and announce Q&A instructions. Thank you.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from the line of Timothy Arcuri of UBS. Your question, please.

Timothy Arcuri -- UBS Investment Bank -- Analyst

Thanks a lot. In the release, you had mentioned that you had some impact for the trade, for what's happening in trade. So Jean, can you just talk about that and talk about maybe what the impact is and maybe whether there is a longer term opportunity, maybe now that high silicon is going to be quite restricted in sort of what they can build? Will there be an opportunity for you there? And I guess also, I just wanted to ask whether you have an update on the $600 million incremental 5G opportunity. It sounds like it's going to be quite a bit bigger than that, maybe as big as $1 billion. So I'm wondering if you can comment on that. Thanks.

Jean Hu -- Chief Financial Officer

Yeah. Hi, Tim, thank you. Yeah, on the trade impact, I think the impact from Huawei, it has happened in the past. So we -- it's already impacted our revenue last year. We actually almost have non-Huawei revenue anymore going forward. On the other customers, right now, based on our assessment, we don't see additional impact. And I think the way to think about it is it's uncertain. But right now, we don't see other impact. I'll let Matt answer the 5G question.

Matt Murphy -- President and Chief Executive Officer

Sure, yeah. And, Tim, just to clarify on the trade side. Yeah, as Jean mentioned, we felt primarily the brunt of that impact about a year ago when the initial restrictions were put in place, and so we've worked through that issue. I think the other thing you may be asking is, what's the kind of overall picture if there's an impact to that particular customer in the 5G space and will other vendors take share? Will that be a tailwind for Marvell? And the answer to that is in our current base case assumption, we're assuming no share shifts. We have strong position at the other four. But, certainly, to the extent that there are share movements within the 5G players, that would be to the benefit of the customers that we supply, that would be a good thing for us.

Related to that was your second part of the question, which was on the long term opportunity. Yeah, it's actually a little bit larger. It was $600 million when we -- stand-alone Marvell. And then when we did the acquisition of Avera, we added another $150 million of run rate business coming over. So that really framed the whole opportunity at $750 million. We still feel very good about that, as you heard in my prepared remarks, as well as even some of the comments from last quarter. We continue to have very strong design win momentum there and content increase at a number of the key players. And we continue to be heavily engaged. And we're still in the early stages of this, and we hope to update that figure at some point in the future. But just clearly, based on what we've won already, there's $750 million that's in the pipeline, probably a little bit more if you look at the Nokia partnership that we announced last quarter. So that's very much on track. Thanks for the question, by the way.

Timothy Arcuri -- UBS Investment Bank -- Analyst

Okay, awesome, Matt. Thanks.

Operator

Thank you. Our next question comes from the line of Gary Mobley of Wells Fargo Securities. Your line is open.

Gary Mobley -- Wells Fargo Securities -- Analyst

Hey, everyone. Good afternoon. Congrats on a good start to the fiscal year. I want to start out by asking about the strength that you've been seeing on the networking side, in particular, 5G and cloud as well. And so clearly, we've seen some good demand trends there, and I'm just curious to hear your perspective on where we might sit with respect to some of those customers, maybe adding some capacity ahead of demand or are they playing catch up. And just trying to get a sense of whether or not there might be some carry through on the strength into the second half of the year.

Matt Murphy -- President and Chief Executive Officer

Sure. Yeah, Gary. This is Matt. I'll take that. So yeah, we're off to a great start in our first quarter. As I indicated, last quarter, there was -- we had a lot of momentum in our business exiting the year. I would also give you a higher level framework to start with, which is remember that the overall semiconductor industry in 2019 went through the third largest down cycle we've seen in the last 25 years, primarily on the back of the trade tensions. And so coming into calendar '20, just kind of broadly speaking, inventories were low in the customer base and supply chain. Certainly, even at Marvell, our own inventories through our channel and our customers were low, and so the demand that we had seen exiting the year even before COVID-19 has continued.

And the drivers we see in our business are, we think, very sustainable, certainly in the two areas that you mentioned. We're at the early stages of 5G, and you've got the China market that is expecting to have very robust demand this year. That's all very sort of publicly announced, and we're at the beginning stages of that. We expect other regions to continue to follow, which would be very good for our customers.

On the cloud side, I think that, that demand trend is certainly here to stay. And while there has been some talk about potential digestion and things of that nature, at least from our lenses at Marvell, we have very unique product cycles that we mentioned, both on our smartNICs, our brand new LiquidIO 3 smartNIC product, which is ramping very strongly, our LiquidSecurity products, storage, I think there's a strong view on the near-line side that, that will be a very good year. So overall, at least from Marvell, we think those are very sustainable.

Last comment I would make is in Q1, we had the additional benefit of some very good enterprise strength, primarily in enterprise datacenter. And that helped us as well. So I think we've got a nice setup of various moving pieces. But certainly from a sustainability standpoint, we see 5G and cloud really driving our business this year through the remainder of the year.

Gary Mobley -- Wells Fargo Securities -- Analyst

Okay. Just as a follow-up question. I wanted to ask about China and 5G. You mentioned some success in market share gains for some of your customers in that region based on their tender activity and whatnot. Why won't you anticipate a more meaningful contribution from that specific region?

Matt Murphy -- President and Chief Executive Officer

Well, it's in -- a little bit started and helped us even in the first quarter as that began. We'll see more in Q2 with -- really, we see a very, very strong Q3, our Q3, for that particular business. And I would say that's really when the volume starts. So we're still in the early stages of that build with some of that comprehended in our Q2 but a much stronger outlook for Q3 and beyond.

Gary Mobley -- Wells Fargo Securities -- Analyst

Gotcha. I appreciate it, thanks.

Matt Murphy -- President and Chief Executive Officer

Yeah.

Operator

Thank you. Our next question comes from the line of C.J. Muse of Evercore. Your line is open.

C.J. Muse -- Evercore ISI -- Analyst

Yeah. Good afternoon. Thank you for taking the question. I guess another question on China. Could you walk through your infrastructure exposure there, both direct and through Avera and potentially additional opportunities outside of Huawei? Thank you.

Matt Murphy -- President and Chief Executive Officer

Sure. Hey, C.J., I'll start with that, and then I'll ask Jean to add if she'd like to. So a couple of things to note. We definitely have indigenous China revenue. We -- prior to the Entity List issues, Huawei was our number one customer in China. And I think that's been very well telegraphed, what's going on there. As you heard my commentary, we've ended up gaining some share at their biggest competitor in China. And so that's going to serve us really well in the 5G ramp. And then additionally, we supply a number of other OEMs. We haven't broken that number out. But what I'd say is if you look at our historical Qs, they just have shipped two numbers, like 50%, 40%-something. And that's obviously way overstated because that reflects primarily contract manufacturing activity in the region. So we've got, I think, exposure in the right places there, both in 5G, as well as some of the key enterprise OEMs there. And then we have some distribution as well. So I think our business is reasonably diversified outside of the first customer I mentioned.

Ashish Saran -- Vice President of Investor Relations

Thanks, C.J. Can we have the next question please.

Operator

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

Vivek Arya -- Bank of America Merrill Lynch -- Analyst

Thanks for taking my question and congratulations on the improving growth and the execution. Matt, just a clarification. I think you started to mention something about networking continuing growth in Q3. I was wondering if you could elaborate on that. And then the question really is, have you seen any double ordering or excess inventory or any abnormal orders from any of your customers in cloud or datacenter or the China markets? Because I think we conceptually get that certain parts of your customer base are strong, but just given all the macro issues, I think investors are naturally worried about anything abnormal that might be going on because of all the trade concerns that are ongoing. So any color in terms of actual consumption of your products, I think, would be very helpful. Thank you.

Matt Murphy -- President and Chief Executive Officer

Yeah, great. Let me start with Q3, and then I'll move to the over-ordering question as well. So on Q3, just to be clear, at the highest level, what I said in my prepared remarks was that we see -- we do see overall company revenue increasing from Q2 to Q3 at this point, given the visibility we have. That's overall company. And that's driven by primarily our networking business, which is 5G and cloud, but also by this custom SSD opportunity I mentioned. And so we see strength actually beyond Q2, both in our networking business and in our storage business.

On the subject of double ordering and the concerns out there, look, I've been on this rodeo for a while. I've seen various shocks to the system and then the resultant supply demand imbalances, and I'm very acutely sensitive to those and watching those like a hawk. From our point of view, I think the interesting dynamic on this one, Vivek, as I mentioned earlier, is that the industry exiting '19 was coming out of a very severe downturn where customer inventory levels were low. And so certainly, there's been a -- they probably overdid it. And I think even -- certainly without COVID-19, I think we were going to see even probably stronger demand as we indicated for last quarter. So that's one part of the setup.

And the second is, we've -- I mean we've -- at least in Marvell, we've really over-indexed on this in terms of spending time on this matter and trying to look at all the customer ordering patterns. Does their market share add up to more than 100%? How much do we think is buffer versus not? And the end conclusion is I'm very comfortable with the current forecast we have and also backlog and order position that we've got. And I'd just make another note, which is as well, just to hedge it a little bit, I mean, we've been running our distribution inventory well below kind of our target levels. And part of that is just to ensure that we maintain integrity in the demand side and make sure what we're shipping is needed. But all things point to, in aggregate, we don't see a double ordering issue.

Final point I'd make is, we haven't been afraid to call those out. I mean, if you look at the third quarter of 2018 calendar, this was right when the trade war -- the tariffs were being announced. And I don't know if you probably remember this, we had a 29% year-over-year growth in that quarter in our Marvell networking business, and we were actually the first company to kind of point out, we think that this is not normal, right? And that we shouldn't expect this to continue, and we tried to plan our business around that. So we've been forthcoming when we see it. At this point, we see the supply demand balance, at least in our view, to be pretty much in line, but we are paying close attention to it.

Vivek Arya -- Bank of America Merrill Lynch -- Analyst

Okay. Thank you.

Matt Murphy -- President and Chief Executive Officer

Great, thanks.

Operator

Thank you. Our next question comes from Atif Malik of Citi. Your line is open.

Atif Malik -- Citigroup, Inc -- Analyst

Thank you for taking my question and good job on the results and guide. Jean, I have a question that you have talked about Avera plus Aquantia minus wireless, adding about $100 million to fiscal '21 sales in the past. I don't expect you to break out these acquisitions anymore. But can you just talk about if you're running above this run rate currently with Aquantia and Avera?

Jean Hu -- Chief Financial Officer

Yes. So we're very pleased with both acquisitions. I think last earnings call, we said both Aquantia and Avera, they have been on track with our expectations. Definitely, through this year, we think they are going to perform better than our expectations just based on the backlog, the order pattern and everything. So overall, very, very pleased with the two acquisitions.

Matt Murphy -- President and Chief Executive Officer

Yeah. And I'll just add to back that up, we had a very, very -- we had a very strong Q4 and Q1. And so the six months that we've owned both of them, we've gained a lot of confidence that not only were those the right acquisitions to do, but the level of top-line contribution was going to be not only right where we thought, but probably given all the dynamics I mentioned, with strength in cloud and strength in 5G, that is benefiting certainly Avera. And then on Aquantia, as I mentioned, we've had very good enterprise strength in some of these segments. So we do see both of those probably performing better than we had indicated back at the time of announcement for calendar '20.

Atif Malik -- Citigroup, Inc -- Analyst

Thanks.

Matt Murphy -- President and Chief Executive Officer

Thanks.

Operator

Thank you. Our next question comes from Harlan Sur of J.P. Morgan. Please go ahead.

Harlan Sur -- J.P. Morgan -- Analyst

Good afternoon and great job on the quarterly execution. On your DIY SSD controller with your lead customer, good to see the initial ramp this quarter. Given that this is a semi-custom chip utilizing a vast majority of your IP, I assume that you're the sole supplier of this SSD controller. So in other words, your customer may be using different NAND memory suppliers, but they will be using your controller solution irrespective. Is my assumption correct? Because I'm just trying to size the opportunity because your customers' platforms here has a historical cadence of ramping anywhere from 5 million to 7 million units in the first year to around 16 million to 20 million units by year three. So pretty substantial opportunity if you guys are the sole supplier.

Matt Murphy -- President and Chief Executive Officer

Yeah.

Jean Hu -- Chief Financial Officer

Harlan, you are right. Yeah.

Matt Murphy -- President and Chief Executive Officer

Yeah, I'll take this, Jean, and then you can add. So yeah. No, you're right. And in fact, the way to think about it is any -- all of these DIY opportunities are, by design, proprietary and sole-sourced in nature. And they -- to your point, they typically incorporate pretty substantial and rich IP from Marvell. And then as a result of that, we're able to command better ASPs and also add an additional functionality above and beyond what you would sort of normally think of a standard SSD controller is being valued at. So I think it's a great combination of -- in any of these DIY efforts that we have going on, and there are several of them, where we have very close collaboration with the OEM to find really something that's very special and unique for what they need. And then the result of that is they can get pretty significant performance benefits across a wide variety of applications when it comes to flash-based storage. So yeah, proprietary, sole-sourced and on track to ramp. And, Jean, on the execution.

Jean Hu -- Chief Financial Officer

Yeah, I would just add, right, Matt said earlier, we already start production in Q2, which is much earlier than we expected. Then Q3, certainly, that's the major ramp it's going to happen.

Harlan Sur -- J.P. Morgan -- Analyst

Great, thanks for the insights.

Matt Murphy -- President and Chief Executive Officer

Yeah. Thanks, Harlan.

Operator

Thank you. Our next question comes from Ross Seymore of Deutsche Bank. Your line is open.

Ross Seymore -- Deutsche Bank -- Analyst

Hi, guys. Thanks for letting me ask the question. Matt, I want to go back to the cloud theme that you talked about in your script and kind of a clarification on a question. That greater than 10% number that you talked about, which is up a lot year-over-year. Just roughly, how is that split between the two segments, storage and networking? And more importantly, going forward, how do you expect that to grow? Customers can be very, very lumpy, especially on what I would assume would be your networking side of the business. It could be a little bit more steady on the storage side. But give us an idea of how we should think about monitoring the growth and kind of the lumpiness of that going forward.

Matt Murphy -- President and Chief Executive Officer

Sure. Yeah. Thanks for the question, Ross, and I'm glad you brought it up. I mean, we definitely wanted to spend time on it. I think if you look at the last year or so, we've been very focused. And certainly, from an investor point of view, the demand for questions and information and the opportunity for Marvell at least has really been framed around 5G. As I mentioned, that continues to be not only a great opportunity, we're actually starting to ship. And so it's nice to see the results now catching up with the thesis. So very pleased about that. And so the thing that's really come together, though, in parallel, as we did the various portfolio moves last year, and even going back further, kind of the Marvell organic investments that we've made, we have been very focused on cloud and hyperscale. We do see that as a big SAM and a big opportunity.

And so what's -- we thought it was an appropriate time to talk about that and break it out because a lot of things have come together, and that business is now ramping. And it's actually strong in both our networking and storage side, and we see both of those opportunities as being quite significant. That's excluding ARM server. I mean ARM server, just -- you just dump that one on top of it. But even ex-ARM server, we see the SAM for our networking and storage products and now the combined company with all the moves we've made, as being an equivalently large opportunity as 5G.

And while cloud spend can be lumpy, we certainly have that in other markets. The carrier market isn't exactly the hallmark of stability. That thing certainly can move around as everybody that's been involved in base stations knows. So there can be some lumpiness to the business. But at the same time, because of the breadth of the products we sell into that market in cloud, and even if you look at 5G, it's the same thing. Well, because we sold to a wide range of OEMs with the right suite of technology, we do -- we are able to smooth out some of the lumpiness. But I think the key thing I would point to is both businesses now are becoming significant for Marvell. Both businesses we expect to grow this year and beyond. And I think it's a horse race between the two on which one can be bigger if you look out over several years.

And so that's really, Ross, why we wanted to spend the time on it. We think it's a pretty major opportunity. But when it was still small a year ago before we did Aquantia -- I'm sorry, before we did -- we had Avera plus some of our own designs that hadn't kicked in, we didn't want to do that. But it reminds me of when I was at Maxim and we had a very nascent emerging automotive business, and then there was a point where we had an Analyst Day, and we decided to break it out because it had crested over 10%, and then it was off to the races. So I think those are some of the -- some additional considerations for you to think about on our cloud business beyond my prepared remarks.

Ashish Saran -- Vice President of Investor Relations

Thanks, Ross. Can we have the next question, please?

Operator

Yes, sir. Our next question comes from the line of Blayne Curtis of Barclays. Please go ahead.

Blayne Curtis -- Barclays Bank -- Analyst

Hey, guys. Thanks for taking my question. I was just curious, Matt, you provided a wider range. And I'm kind of just curious how you're thinking about that. Clearly, the factory shutdown that impacted you in storage. It seems like most factories are kind of back online. So it seems like some of the headwinds or tailwinds, I'm kind of curious, what you're thinking about on the other side of the coin there as you look out into Q2, as well at the end of the year.

Matt Murphy -- President and Chief Executive Officer

Yeah. Sure. I'll give you both sides of the coin. I think on the one hand, you could take the argument you just said, which is what we see today, by the way, that things appear to be stabilizing and factories are coming online and countries are reopening and so forth. At the same time, though, I mean, let's just take a big step back, right, so the whole world and environment is highly uncertain and the rate at which this thing hit us, I think, caught everybody off guard. And so I wouldn't read too much into it other than we widened the range last quarter. And just out of the abundance of caution, there's no reason to tighten it at this point, but we don't see anything differently than you mentioned at the beginning. I mean we -- it seems like we've got our demand drivers. We've seen strong orders. We've got good backlog position, those types of things. So we have confidence in our business.

But it's really just around the broader level of uncertainty. And I think our range, by the way, is very consistent, actually, with a lot of other semi peers. So I -- we'll probably leave it a little bit wider until we -- the world seems to stabilize.

Blayne Curtis -- Barclays Bank -- Analyst

Thanks for that.

Matt Murphy -- President and Chief Executive Officer

Yeah.

Operator

Thank you. Our next question comes from John Pitzer of Credit Suisse. Please go ahead.

John Pitzer -- Credit Suisse -- Analyst

Yeah, hi, guys. Congratulations on your results. Matt, maybe another way to ask Blayne's question. You guys clearly have a different go-to-market model than a lot of other semis, more direct, less distribution. And at least relative to some of the broad-based semis, you have a lot fewer customers. But I'm just kind of curious, as I look toward the guide for July, it seems like a lot of your peers significantly discounted their bookings and backlog trends when they gave guidance for June, July just trying to take a level of conservatism. I'm just wondering if you can give us any color on how you constructed this guide relative just to all the backdrop of the macro uncertainty. And as an example, some companies had guided to a 100% backlog coverage where they normally guide to 75% to 80% backlog coverage.

Matt Murphy -- President and Chief Executive Officer

Yeah. Sure, John. Yeah, happy to answer that. And I have seen that commentary. And I think it does have a lot to do with what you mentioned, in particular, probably the analog mixed-signal guys who have a much broader customer set, highly distribution-oriented consumer and industrial type of exposure in automotive as well, where those types of markets seem to have been hit very, very hard. I think our market mix is clearly benefiting us at this point in our strategy that we really have been driving for the last several years, I think, it's become extremely pertinent in this new world. And so I think, we're quite different than maybe some of the other broader-based folks, who I don't blame them for being extremely conservative, and I understand those dynamics that they may face.

But, I'd say, with us heading in, I mean, we also, through the mix changes, because we're not selling as much into consumer anymore, as an example, the lead times that we get are solid. Our terms and conditions are quite solid. The backlog coverage we get is, especially with Avera coming in, and think of it as Avera coming in and Aquantia and Wi-Fi going out and you swapped that sort of consumer for infrastructure, you're just getting a much better backlog position. And on top of that, we've got the channel quite lean. And we're also carrying some delinquency higher than we normally do.

And so that gives -- which means we've got backlog that's out in Q3 that customers would like us to ship into Q2, and that has increased relative to where we normally run it. And so I think that those are some of the other data points, John, that give us comfort in the guide as well as just our starting backlog position has been higher than most quarters since we've been here.

John Pitzer -- Credit Suisse -- Analyst

Perfect. Great color. Thanks.

Operator

Thank you. Our next question comes from Christopher Rolland of Susquehanna. Your line is open.

Christopher Rolland -- Susquehanna Financial Group -- Analyst

Thanks for the question. Matt, in your prepared comments, you spoke about Jensen and the DPU. And you guys were really pioneers in smartNIC technology with LiquidIO and Cavium there. And you called that out specifically as a driver this quarter. I know Cavium used to have one key partner there that eventually went internal with their own development. But perhaps you can talk about this renewed interest. How broad is it? What kind of levels are we at? Are we close to old levels? And is it going to be sustainable in your opinion this time?

Matt Murphy -- President and Chief Executive Officer

Yeah. Great. Thanks, Chris. Great question. So first point on DPU, I thought that was really, really well done by our colleagues over at NVIDIA and it certainly resonated. I think that was the clearest way that I've seen anybody explain what these products do. And I think the market in general has gotten confused over what's a smartNIC? Isn't a NIC kind of a commodity thing? And it's terms like fungible and liquid, and it just -- I think this is a much crisper way to describe it and so -- and it certainly fits, as you point out, kind of a key IP in a key area that Cavium really pioneered. And so with respect to our smartNIC offerings, I think kind of it's consistent with the question that Ross asked. We spent a lot of time talking about 5G last year, but very quietly, we've been continuing those roadmaps. And so that is ramping. It's highly sustainable. We -- and it's -- and we're engaged with multiple OEMs between the ramps that we're getting plus new opportunities and engagements.

And I actually think we're in probably one of the best positions of any semiconductor company to truly tailor and optimize solutions based around a smartNIC type of architecture because we have all the pieces, right? We have the latest generation OCTEON core, which is highly programmable. We have network connectivity in Ethernet. We have security. We have access to development and investment in the most advanced node process technologies. And we have ASIC capability, which is a trend that we see as well, where some of the large hyperscalers are just saying, let's go skip over a LiquidIO type of solution. Let's go directly to our very special thing that we want and we think we can provide a similar type of solution there, just like we do in our "partner model" on baseband, where we contribute a big chunk of the IP. The customer can also contribute. We stitch it together. They get exactly what they want, and we can do it very quickly without the customer having to hire a gigantic design team and take three years.

So I think it's a very compelling opportunity, Chris, both on the current ramps we're seeing, on the latest generation products, as well as our roadmap and the ability to customize and drive this product area forward. Thanks for the question.

Christopher Rolland -- Susquehanna Financial Group -- Analyst

Thanks, Matt and congrats on the quarter.

Matt Murphy -- President and Chief Executive Officer

Yeah, thanks, see you.

Operator

Thank you. Our next question comes from Joe Moore of Morgan Stanley. Your question please.

Joseph Moore -- Morgan Stanley -- Analyst

Great, thank you. You talked about Thunder and the enthusiasm that you have there. Can you talk a little bit about some -- like what are the key workloads that you're addressing? And is this -- I think at one point, there was a thought that this, sort of, is a replacement for Intel on a broad base of applications and -- versus something that's kind of an accelerant for a few key workloads. Like, what's just the framework of how you're thinking of that now over the next three to five years?

Matt Murphy -- President and Chief Executive Officer

Sure, Joe. Yeah, and I think the world -- the whole Thunder investment that we're making has continued to be really focused down. I mean if you went back to sort of pre-acquisition of Cavium, I think there was a view that said there's a very large market for this. We can sell it to a whole ton of customers across a whole bunch of different applications and serve a number of workloads and go head-to-head with more general purpose type x86. And really, the direction that we've taken is to really focus the product down and tailor it really around a handful of key vendor, key customers in the cloud area. And within that, as an example in our announcement publicly we had with Microsoft, we're -- the first property that we're in is in Azure storage. And the way we develop and define the part was really ideal for that application, but we can certainly do a high level of customization for these hyperscalers because they know exactly what they need. And so we do see opportunities in expanding into more compute-oriented applications and workloads, but that's sort of in the future.

But again, I'd sort of transition the Thunder story just to bridge everybody from, hey, it's broad-based, it's going to go take on x86 and take on the world across all kinds of applications to really the evolution over the last few years under a more focused effort to really focus around the hyperscale opportunity and tailor it specifically to those customers and what they need.

Joseph Moore -- Morgan Stanley -- Analyst

Great, thank you.

Matt Murphy -- President and Chief Executive Officer

Yeah, thanks.

Operator

Thank you. Our next question comes from the line of Tore Svanberg of Stifel. Your question please.

Tore Svanberg -- Stifel, Nicolaus & Company -- Analyst

Yes, thank you. Congratulations on the results and the new branding. I really like the logo. Matt, not to sort of steal your thunder from the Analyst Day in October, but you talked about in the automotive space, you kind of see this zonal architecture that's very similar in the sort of enterprise networking world. I was just wondering how that's going to play out. Will you be working with networking companies here or will you be working with the hyperscale guys or the auto companies? So just trying to get a head start on how that whole world is going to look like.Thanks.

Matt Murphy -- President and Chief Executive Officer

Yeah, great question. Here's the way I'd say it. It's very much with the automotive customers themselves, and it's very much with the OEMs themselves. And a little bit like if you go back in time, the automotive OEMs probably in the mid-2000s to kind of 2010 era started taking a lot more control over their semiconductor strategies, and that was really, generally, around things like infotainment, EV, ADAS. And you also then started seeing these gigantic automotive OEMs with full semiconductor teams. First, it was sort of purchasing and quality, then they started adding design capability and resources and they've built up over the years quite a capability. So they take very seriously -- they want to control their own destiny when it comes to their future car architecture.

So we have a huge head start because of our Ethernet opportunity where we're designed in -- we've talked out about this a couple of times. We're in 16 different OEMs. They're going to use -- are using or are going to use our Ethernet solutions to provide in-car networking, and that provided a nice beachhead to go in and also show them all these other types of IPs we have, and now we're getting traction there. And so this is a longer term opportunity, but it can be quite significant in nature because I would -- the analogy I would give you would be I think the sea tide shift we saw in automotive in the kind of mid-2000s in sort of the infotainment revolution that benefited all kinds of companies, all kinds of semiconductor companies, the new wave of automotive suppliers came out of that. One was my prior company, but also many others had a huge benefit on the infotainment revolution.

I think this data-centric evolution in automotive is going to be just as substantial and really plays to our strengths. And so we look forward to articulating this in more detail at our Investor Day. This is a long-haul type of opportunity. But we've got enough traction now that it's going to be worth calling out and explaining to investors and the analyst community what we're up to and what the opportunity could look like, especially for our long-term investors who want to -- who are now asking me, hey, this is all great with what you're doing in 5G and what you're doing in cloud. What's next? And so we think there's a nice story to be told there about what's beyond these other cycles that can drive the company for a long time in the future.

Tore Svanberg -- Stifel, Nicolaus & Company -- Analyst

Thank you for that.

Operator

Thank you, Our next question comes from Srini Pajjuri of SMBC. Your line is open.

Srinivas Pajjuri -- SMBC Nikko Securities America, Inc -- Analyst

Thank you. Thanks for that squeezing me in. Matt, I just want to go back to the 5G topic. You alluded to Q3 being potentially up. I'm just curious, I mean, are you getting better visibility as some of these regions roll out 5G? Is that what's giving you confidence? And it looks like it's mostly coming from China, your Q3 commentary. Could you also talk about what's going on in some of the other regions like U.S. or Japan and Korea? And also touch upon India because that's been a big market for Samsung historically. Thank you.

Matt Murphy -- President and Chief Executive Officer

Yeah. Thanks for the question. So a couple of things. I think one is, given the ramp that's coming and the lead times associated with these products, we have strong backlog today, and we have strong bookings in this area, both in Q4 as well as in Q1. That certainly give us confidence that Q2 and Q3 are going to look very, very, very good in this area. And the reason, at least that we're hearing and that we can infer both from looking at the outside market -- outside and as well as from our customers is that primarily -- it's primarily driven by China. But I think the OEMs are all gearing up, to your point, for the other markets. We see that Japan will start to roll out later this year. There was a concern that, that would get pushed or pause completely due to the Olympics moving out and then COVID-19, but it looks like that -- well, it may not be as robust, and we don't know yet on any of these things, whether it'll -- what the slope will look like, but Japan is certainly talking about rollout starting later this year.

The U.S. carriers, once they can start putting people back out and selling things, they're planning on second half in more robust deployments. And then India, they've got -- and the U.S., by the way, both have pretty important spectrum options that need to get completed, we think, to really drive 5G. As you know, in India, we still have a strong 4G presence through our lead customer, but really, it's 5G that's going to drive the growth.

So we -- these things may be moving around a little bit. They may be moving out, but it's definitely a when, not an if. And I think what's nice is it's hard to handicap these. But what I'd say is, even though some of the other ones, if you looked at where we started the year, some regions are probably pushing out a little bit more than what we thought. But then the China opportunity actually sort of dwarfs that and offsets it. So I think net-net, we do see countries that are going to roll this out. It's going to take time but it's encouraging to see at least a large geo really driving this forward. And then ultimately, that's rippled back to orders on our books that we need to go fulfill. So I appreciate the question.

Operator

[Operator Closing Remarks]

Duration: 68 minutes

Call participants:

Ashish Saran -- Vice President of Investor Relations

Matt Murphy -- President and Chief Executive Officer

Jean Hu -- Chief Financial Officer

Timothy Arcuri -- UBS Investment Bank -- Analyst

Gary Mobley -- Wells Fargo Securities -- Analyst

C.J. Muse -- Evercore ISI -- Analyst

Vivek Arya -- Bank of America Merrill Lynch -- Analyst

Atif Malik -- Citigroup, Inc -- Analyst

Harlan Sur -- J.P. Morgan -- Analyst

Ross Seymore -- Deutsche Bank -- Analyst

Blayne Curtis -- Barclays Bank -- Analyst

John Pitzer -- Credit Suisse -- Analyst

Christopher Rolland -- Susquehanna Financial Group -- Analyst

Joseph Moore -- Morgan Stanley -- Analyst

Tore Svanberg -- Stifel, Nicolaus & Company -- Analyst

Srinivas Pajjuri -- SMBC Nikko Securities America, Inc -- Analyst

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