Analyst Conference Summary

Marvell Technology Group

conference date: March 5, 2009 @ 2:00 PM Pacific Time
for quarter ending: January 31, 2009 (4th quarter fiscal 2009)

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Forward-looking statements

Overview: Economy sucks Marvell revenues down, with GAAP net loss, but cash flow positive.

Basic data (GAAP) :

Revenue fell to $513 million, down 35% sequentially from $791 million and down 39% from $845 million year-earlier.

Net income was negative $65 million, down sequentially from $71 million and down from break-even year-earlier.

EPS (earnings per share) were negative $0.11, down from positive $0.11 in Q3 and down from break-even year earlier.


First quarter fiscal 2010: unprecedented end-market consumption declines allow for limited visibility. Revenues of $490 to $530 million. Non-GAAP gross margins 51% to 52%. $235 million non-GAAP operating expenses. $0.03 to $0.05 per share non-GAAP EPS with slighly positive operating cash flow offset by restructuring charges. GAAP EPS negative $0.12 to negative $0.08 per share.

Conference Highlights:

Non-GAAP net income was $32 million or $0.05 per share, down 78% from $145 million in Q3 and down 74% from $123 million year-earlier.

Dr. Sehat Sutardja, CEO, said they acted quickly "to lower our operating expenses and generate healthy free cash flow." Believes economy will remain down in short run, so are lowering expenses, including a 15% reduction in work force (about 850 employees). Believes just having positive free cash flow makes them best in class financially in this environment.

Believes trend is to architectural convergence into system-on-chip designs, which Marvell is well positioned to take. Next generation device requirements will favor Marvell. Deep knowledge of high-performance CPUs is crucial to this. Smartphones illustrate this.

Restructuring charges to date will cost about $20 million, of which $5 million will be non-cash.

GAAP gross margin was 50.7%, up from 48.1% year-earlier, but down sequentially from 52.1%. Non-GAAP gross margin was 52.0%. 5% non-GAAP operating margin.

Cash flow from operations was $109 million. $14 million used for capital expenditures. Free cash flow was $95 million. Cash and equivalents ended at $952 million. Accounts receivable dropped to $222 million; inventories dropped to $310 million; accounts payable dropped to $139 million. The long term loan obligation was paid off, resulting in the cash balance drop.

Cost of goods sold was $252.7 million, leaving gross profit of $260.1 million. Operating expense of $329.4 million included $207.6 million for R&D, $31.9 million for sales and marketing, $32.0 million for general and administrative, $48.3 million for amortization, and $9.7 million for restructuring. Operating loss was $69 million. Interest expense was $0.4 million. Tax benefit was $4.7 million.

Stock based compensation was $44.7 million.

Also freezing salaries and suspending bonuses, with some work hour reductions.

75% of revenue shortfall from prior projections was due to PC market, 15% to consumer, and 10% due to enterprise networking products.

Western Digital was only greater than 10% customer.


R&D expense reduction effects? Looking 2 to 3 years down the road, many products will have similar requirements. So we are eliminating many research redundancies.

Cellular business, do you have sufficient scale to stay in that market? It is a very important market to address. We have best in class processor for this market. We believe in smartphones. We have numerous engagements for this and are positive about the outlook.

Any Q1 tax benefit like the one in Q4? Two tax effects. Benefit of $5 million from statute of limitations expired, so reserve removed, which we put in GAAP but not non-GAAP numbers. $4.7 million credit from jurisdictional change.

Operating expense savings from restructuring should be $100 million per year by end of 2009. Guidance assumes $15 million in benefit for Q1.

Target gross and operating margins? No point to talking about long term targets in this economic environment, but ... would like gross margins to go above current levels, around 53 to 55%. Some design wins have not yet been announced, but should improve margins in the next couple of years due to mix changes. Operating margins of 20% to 25%. Timing depends on recovery of economy.

Ending headcount? About 5500.

Storage business details? Not providing segmentation data this time.

Backlog has improved since the beginning of this quarter.

January, we believe, was the bottom for us.

Channel inventories? Visibility is minimal. Believe is on the tight side. We are seeing some expedites. But would not want to characterize any improvement as a trend yet.

Netbook reactions from OEM customers? Very positive reaction, they say we have the leading edge solution. We did demonstrations at CES. Software runs on Linux. Next billion new users may be Netbooks.

Pricing? It is a challenging environment, our customers are pushing at us. Our counter is the added value of our products.

Possibility of silicon into Seagate drives? Without referring to a specific customer, there are 2 we don't have that we are making progress, but design cycle is long.

Broadcom triple play (FM, WiFi, bluetooth) threat? Our combinations shows several db improvement over competitor. We can combine all three, but most customers want just 2 of the 3 at this point. Our die size is typically 30% smaller than our competitor.

Products for gains in 2009? HDD (hard drive) market share gains; solid state disk controllers; WiFi in gaming, printers, cameras, and cell phones; HDTV decoders; application processors; energy management. New RIM product launches will use our next generation communication processor.

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Copyright 2009 William P. Meyers