Marvell Technology Group
conference date: November 27, 2007 @ 1:45 PM Pacific Time
for quarter ending: October 27, 2007 (3rd quarter fiscal 2008)
Overview: Very strong revenue gains, but still had a GAAP net loss for the quarter. Non-GAAP net income was strong.
Revenue was $758.2 million, up 15% sequentially from $656.7 million and up 46% from $520.4 million in the year-earlier quarter.
Net income was negative $6.4 million, well up sequentially from a loss of $56.5 million, but a reversal of net income of $6.0 million year-earlier. (but see non-GAAP net income below)
Earnings per share (EPS) were negative by $0.01, up sequentially from negative $0.10 per share put reversing a $0.01 gain in the year-earlier quarter.
Storage sales improvement forseen. Ethernet and connectivity growth, but wireless flat after seasonally strong Q3.
Q4 revenues $780 million. 40 basis point improvement in gross margin and up to 50% by second half of FY 2009.
FY 2009 expenses are expected to grow at a slower rate than revenues.
Record revenues and reached $3 billion revenue annual run rate, exceding guidance of $710 million. Overall demand continues and expects further revenue increases in Q4. This results from investment in a broad range of technologies and integrating them. But operating expenses are too high.
Non-GAAP net income was $86.2 million or $0.14 per share. The difference with GAAP was largely due to amortization of acquired intangibles from the Intel cell-phone processor division and stock-based compensation.
Non-GAAP gross margin was 48.3%, down 3% from year-earlier. Hurt by fair market value writedown of Intel inventory. Tax rate was negative 8% due partly to a settlement in Marvell's favor.
Announced plans to lay off 400 employees, 7% of workforce. Will take $8 million one-time charge. Should reduce quarterly expense going forward by $10 million.
Storage results were strong across customers with 16% growth driven by 2.5" drive growth. Wireless LAN had 50% sequential growth. Printing segment had 20% sequential growth. Cellular/handheld growth was 10% sequentially driven by application processor business.
Application processor business costs are being lowered. Legal expenses expected to decline going forward.
Cost of goods sold was $396.2 million. Gross profit was $362.0 million. R&D was $252.2 million, selling and marketing $46.4 million, general and administrative $32.5 million, and amortization of acquired intangibles $37.3 million. Total operating expenses were $368.5 million. Operating loss was $6.4 million. Interest expense $6.0 million. Income tax benefit was $6.0 million.
There was a $17 million fair market value adjustment for Intel inventory. This has to do with contract negotiated actual price of wafers versus fair market price. These adjustments are mostly over; mayber $8 million in Q4.
Cash and equivalents ended at $529.5 million, up $33 million. Term loan obligations were $391 million.
Inventories ended at $381.5 million. Accounts receivable were $386.5 million. Accounts payable were $209.4 million.
Long term, we are well positioned for growth. In storage will introduce iterative SOC technology on a broad scale in 2008, which will place them way ahead of competitors. Expects double digit annual growth in storage. Also introducting optical storage parts and serial attached SCSI (SAS) host bus controller products.
Adding video products; making progress in market acceptance. LG, Panasonic, Pioneer, and Sharp have demonstrated products with the technology.
New digital technology for power supplies; very Green technology based on 5 years of R&D. Overcame earlier analog power adapter problems; huge market opportunity.
Still looking for permanent CFO and general counsel.
When will reduction in force benefits kick in? About $4 million benefit in Q4, $10 million per quarter after that.
Shortages of hard disk drives in end market? We do not see those shortages as being a problem for us.
Cell phone processor outsourcing process? TSMC parts may ship this quarter, with higher production in Q1. Question of qualifying parts with end customers. By Q3 next year we should be getting about 30% from TSMC with rest coming from inventory acquired from Intel.
Q4 expected tax rate? About 10%.
Drivers for 50% gross margins in fiscal 2009? Gross margins are a central focus of the company. Working with vendors and customers for gradual improvements.
Are staffing adds on hold? We are sensative in launching new long term programs, unlike in past, because of past investments. What we have is sufficient to drive revenue growth in next couple of years. No need to increase headcount, expect perhaps in very specific areas.
Inventory increase sequentially? Most of that inventory increase (about $85 million) was due to advance purchase of Intel inventory (about $50 million) under supply agreement, which we feel is fine giving our design wins. Rest of increase is just for increased business.
Order linearity going into Q4? In Q3 we had good linearity; first 2 months were better than in past. Backlog going into Q4 was very strong.
Pricing? Typical trends. In semiconductors prices go down; new, innovative products are always needed to recapture pricing.
January quarter (fiscal Q4) is 14 weeks, not the usual 13. This extra week to some extent compensates for seasonal weekness due to holidays.
Long term gross margins? Would like to improve upon 50%, but it is too early to be more specific. Looking for 24% operating profit margin long run.
Strong backlog color? No numbers. High enough to make us confident to meet guidance number.
Bluetooth strategy? We continue to introduce Bluetooth products. GPS is an area we are looking at, but we don't have anything to talk about yet.
10% customers? Research in Motion and Western Digital.
Analyst Conference Summaries Main Page
Marvell Investor Relations page