Analyst Conference Summary

Marvell Technology Group

conference date: March 4, 2010 @ 1:45 PM Pacific Time
for quarter ending: January 30, 2010 (fourth quarter fiscal 2010)

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Forward-looking statements

Overview: Another strong quarter of revenue growth, with flat GAAP net income but good non-GAAP net income growth.

Basic data (GAAP) :

Revenue was $842.5 million, up 5% sequentially from $803.1 million, and up 64% from $512.9 million in the year-earlier quarter.

Net income of was $204.8 million, up 1% sequentially from $201.6 million, and way up from negative $65.0 million year-earlier.

EPS (earnings per share) were $0.31, flat sequentially from $0.31, but well up from negative $0.11 year-earlier.


Q1 revenue $855 to $860, in a quarter that is normally sequentially down. 60% non-GAAP gross margin. Non-GAAP EPS $0.30 to $0.40. GAAP EPS lower by about $0.09 per share.

Conference Highlights:

Sehat Sutardja reported end market performance was in line with December guidance. $100 million revenue was from new products. Demand accelerated for new products during the quarter. 3G cellular communication processor revenue doubled in the quarter. Enterprise switch revenue also doubled. New products to represent 15% of total revenues in Q1 fiscal 2011. Groundwork for gains in coming years has been completed, and believes within twelve months will hit an upward inflection point. Will invest more to prepare for this eventuality.

Believes the industry is more likely to have supply constraints in 2010 than an over build of inventory.

Many new product announcements in quarter, including Armada based platforms. Armada now has over 100 confirmed design wins. Newest Armada device operates at 2GHz but uses less than one watt of power. A four-core Armada device has also been introduced.

Non-GAAP numbers: net income $266 million, EPS $0.40, up sequentially from $232 million and $0.35, and up y/y from $32 million and $0.05.

There was a GAAP tax benefit in Q3 that explains why GAAP EPS was flat sequentially in Q4 despite higher revenue.

New smartphone programs continued to ramp. 90% of China OPhone models have Marvell silicon in them. Market acceptance has been positive. RIM line is rebinding. In Q1 expects balanced growth, with low single digit revenue growth.

Switching segment grew quicker than expected, but expects slight networking revenue decline due to normal Q1 seasonality. Represents about 20% of revenue.

Storage (hard drive) market demand was strong and represented about 50% of revenue. Expects to follow seasonal patters going forward.

60% gross margin, above expected range of 58% to 59%; 32% operating margin, a record. Mainly resulted from an improved product mix.

Cash flow from operations was $281 million; free cash flow was $253 million. Cash, equivalents, and short-term investments ended at $1.80 billion, up $333 million sequentially. $77 million was generated by employee stock options. Inventories were just $241.5 million.

Cost of goods sold was $339.8 million, leaving gross profit of $502.7 million. Operating expenses of $297.0 million included $213.0 million for R&D, $37.1 million for selling and marketing, $22.5 million for general and administrative, and $24.3 million for amortization and write-offs of acquired intangible assets. Leaving Operating Income of $205.8 million. Interest income was $10.2 million. Income taxes $11.2 million.

Framework for modeling going forward: over 12 months will reach an inflection point as new programs shift into production. Financial discipline is fully engrained in the organization. Targets are revenue growth 20% to 25% annually. Gross margins 58% to 60%. Will continue to invest in new product development, but expenses should grow slower than revenues. 5 to 8% non-GAAP tax rate. Operating margin non-GAAP 30% plus or minus 1%


Where will the accelerated growth come from? Several areas. Mobile and wireless, cell phones. Armada-based designs. Wi-fi combo devices. Networking Avanta EPON. Share gains in HDD market; new SSD drive market.

Capacity contraints? We are seeing tightness at foundries, and at HDD makers, it is a concern. We would like to see our inventories grow they next few quarters, but so far demand has grown faster than supply.

Long term model margins? We are already at the high end of our model range, we can sustain it. But there will be fluctuations around that.

New products require a year to go from chip prototypes to device prototypes and first revenues, longer for cell phones. Some new devices are simple enough to do the cycle in six to nine months. Revenues for 2010 come from design wins in 2009.

OPhones will almost all use Marvel combo for WiFi and Bluetooth. We deliver a software package with the chips.

Any insight on Q2? Normal Q2 seasonality is flatish. We are not forecasting beyond Q1. For Q2 our customers are worried about foundry supply, so we get more visibility. Because last year was such a downturn, this year seasonality may not be normal, especially given the new technology being introduced. Supplies may constrain sales in Q3 and Q4.

Cash use? We need a strong balance sheet for our long term plan. We will be able to quickly react to opportunities. We prefer to develop in-house, but do want to buy small R&D teams opportunistically.

HDD color? We see broad strength, which means flat rather than seasonally down. Customers will ramp up new, high-capacity drive LDPCs later this year; our solution is the most efficient in the market.

Taiwan earthquake? Preliminary assessment is minimal impact.

Application processors integrated with modem and graphics into single chip device for next generation of OPhones. Marvell is aligned with 8 of 9 OEMs for this generation.

Competition for SSD (solid state drive) controllers? Initially focussed on high-end. We built the controllers for Intel and Micron. Over time we introduced lower cost, entry level SSD controllers for laptops, etc.

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Copyright 2010 William P. Meyers