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conference date: November 16, 2006
for quarter ending: October 28, 2006 (3rd fiscal quarter 2007)
Overview: Revenues down dramatically (9%) from Q2, about as expected (revised guidance had been a 10% decrease). Stock-based compensation accounting review continues, with no GAAP data to be released until it is completed.
Basic data:
Revenues of $520.4 million, down 9% sequentially from $574 million in Q2, but up 22% from Q3 fiscal 2006.
$876 million in cash at end of quarter.
Guidance:
Q4 2007 revenues of $530 million for prior lines plus $90 to $100 million from Xscale addition. Gross margins on existing business to improve slightly from Q3, but Xscale will bring down overall margins. Expects .05 per share net expense from Xscale.
Conference Highlights:
Completed acquisition (on November 8) of Intel Xscale chip division (smart phone chips). Much work for integration ahead, which will require additional investment, but will drive down cost structure in long run. Moving to fabless model, 65nm, 12" geometry and integrating with Marvell's designs. Feedback from RIM and Motorola is strong. Xscale is a superior technology over competitors.
Decline due to lower demand from hard-disk drive customers. They had excess inventory and PC demand was relatively weak. Continuing to expand technology lead in this field.
Embedded products saw increasing demand. Low demand for older 802.11 products.
3 10% customers in Q3.
Trends: less favorable product mix resulted in lower gross margins than expected.
Operating expenses as planned. Substantial costs for stock-option accounting review
Inventory increased due to lower demand. Taking steps to reduce inventory.
Embedded wireless LAN (Wi-Fi) continues to grow. 802.11n market still faced with inventory challenges that will continue through Q4. Home video design wins. Gigabit internet growing strongly. Infrastructure market seeing strong growth. Optical storage solution chips making progress, but software development has been more difficult than expected.
Q4 hard disk chip inventory issue has been resolved. Gaming LAN chips will be weaker than Q3.
Q&A:
storage chips? Inventory issue was related to consumer side, not enterprise side.
Xscale acquisition impact? Believes Xscale will become accretive by Q4 of fiscal 2008. Gross margins should improve slightly every quarter, with biggest improvement in Q2.
Is the .05 dilution in addition to the prior .02 dilution? Yes.
Xscale? Issues are largely in the past. Will resolve remaining issues in next year. Demand is there, Intel was capacity constrained. Sales system is in place. About 1250 employees in division.
Milestones for options issue? Special committee working on review. Have begun early parts of restatement process.
Xscale supply? 100% of Q4 2007 from Intel. Then will take wafers in fiscal 2008, then fully Marvell fabless in fiscal 2009 (calendar 2008). Intel already had a new chip generation that will come out in Q2, which in itself will improve costs.
Lack of market share by Intel? Was solely due to capacity limitations, which Marvell will fix. In top end of market do have majority of market share. Competitor dominates low-end, which Marvell will target over time.
Optical storage? DVD market will be strong until end of decade. Will be building both Blu-Ray and HDDVD solutions, but ramp will be gradual. Solving problems that irritate end consumers.
Qualcomm IP issues? Received substantial number of patents from Intel with the business.
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Disclaimer: Our analyst summaries may include both our condensations of statements made by company representatives and our own analysis. They are not covered by any warranty. We cannot guarantee anything said by company representatives is true. Before making or terminating an investment you should always verify any factual basis of your decision.
Copyright 2006 William P. Meyers