Analyst Conference News Summary

Marvell Technology Group

conference date: November 17, 2011 @ 1:45 PM Pacific Time
for quarter ending: October 29, 2011 (third quarter fiscal 2012)

I own MRVL
Forward-looking statements

Overview: Strong growth and within guidance.

Basic data (GAAP) :

Revenue was $950.4 million, up 6% sequentially from $897.5 million but down 1% from $959.3 million year-earlier.

Net income of was $195.1 million, up 1% sequentially from $192.4 million but down 24% from $255.7 million year-earlier.

EPS (earnings per share) were $0.32, up 3% sequentially from $0.31 but down 16% from $0.38 year-earlier.


Q4 fiscal 2012 revenues of $775 to $825 million due to typical seasonality and impact of floods. By end market mobile & wireless down 10 to 15%; networking flat; storage down 20% to 30%. Gross margins to remain flat due to commodity prices. Non-GAAP EPS $0.23 plus or minus "a couple of pennies." GAAP EPS lower than non-GAAP by about 5 to 7 cents.

Conference Highlights:

Growth was driven by mobile and wireless end market. TD smartphone chips used by 15 customers with over 30 models. Also WCDMA solutions started shipping in the quarter to new customers. Continues to win a disproportionate share of sockets.

"We have a strong balance sheet that will allow us to better manage the impact from the flooding in Thailand. The damage cuased by the floods will have a near term impact on us, but we expect to emerge from this even stronger.

Non-GAAP numbers: gross margin 56.8%, down sequentially from 57.9%. 25% operating margin. Net income $244 million, up sequentially from $234 million but down from $307 million year-earlier. EPS $0.40, up sequentially from $0.38 but down y/y from $0.45. Stock based compensation expense excluded was $30.6 million.

Mobile and wireless segment up 24% sequentially, better than expectations and representing 31% of total revenue. Wireless connectivity solutions showed seasonal growth. TD doubled from previous quarter on new device introductions. Marvell had over 70% of TD market (basically, China). China Mobile is increasing its investment in deploying the devices. But expect increased competition in 2012. WCDMA also represents a significant global market opportunity over next few years; initial revenues recorded in the quarter. "Business with our largest north american mobile customer [RIM] continues to be stable." This customer already has delivered 4 new Marvell-silicon based devices, and will deliver more devices in 2012. Next generation low cost smartphone solutions are driving growth; addresses over half the world's population. In fiscal Q4 sees a continuing mobile revenue ramp. Wireless connectivity also saw a double digit sequential increase driven by home connectivity and game device customers. Next generation game connectivity product discussions underway. Connectivity, however expected seasonally down in Q4, resulting in mobile and wireless segment down overall.

Networking down 1% sequentially, about 18% of total revenue. Below expectations, customers tightened inventory. PON sales doubled and expected to grow in Q4. Overall networking segment relatively flat in q4.

Storage down 2% sequentially, about 45% of revenues. If not for flood we believe we would have shown growth. Believes hdd industry will cope well with Thailand flood. Just a question of when the industry will recover. Advanced technology from Marvell will benefit because of parts shortage for older technologies. SSD business grew double digits in quarter, but volumes are still small compared to HDD. For Q4 storage expected to decline double digits sequentially.

Cash and equivalents ended at $2.42 billion. Cash flow from operations was $262 million. Free cash flow was $239 million; 25% free cash flow margin. $215 million was used to repurchase stock. $258 million remains available in repurchase plan. Inventories were down sequentially.

Almost $50 million higher y/y R&D expense explains much of the net income & EPS decline y/y. Also, commodity prices increased.

Cost of goods sold was $412.1 million. Gross profit $538.3 million. Research and development expense $266.3 million. Selling and marketing $40.5 million. General and administrative expense $29.0 million. Amortization $11.2 million. Leaving operating income of $191.4 million. Interest income wa $7.7 million. Income tax provision $4.0 million.

Expects restoration of HDD global capacity to take place mainly in Marvell's fiscal Q2.


Move to SSDs and advanced HDD, is that temporary? Move to SSDs for high end will continue. For advanced HDD, once the transition happens, it won't go back. We introduced this technology 2 years ago, it is a mature technology where we are the clear leader. Equipment hurt by flood will be replaced with newer machines, so industry will be stronger, building higher capacity, smaller, lower power drives that might even be usable in tablets.

Qualcomm support for TD in 2nd half of 2012? TD is a real business opportunity, it is clear it is a huge market, so competition is coming in. We expected that all along, it proves we are on the right track. We are ahead by a year or two and continuing to invest, including in lower cost solutions.

Overall TD market growth outlook? There are 600 million potential subscribers and about 200,000 base stations. That is way larger than any U.S. carrier. TD did need a subsidy to take off when handsets were expensive two years ago. New Marvell solutions allow smartphones to be built for $100 without subsidies, not much more expensive than feature phones. Estimates are 10 to 12 million units sold, with 20 to 30 million units sold next year. So even with increased competition Marvell's units should grow in 2012.

Advanced HDD solutions are already ramping, will see more ramp in 2012.

Storage guidance vs. OEM guidance? We are on a different quarter, Q4 ends in January. We expect to see some production restoration as early as December. We serve many customers in many countries, so as capacity shifts around we follow that.

WCDMA? Just a few customers in Q3, expect to grow revenues with current customers and add new customers in 2012.

Networking flat guidance, implications on industry inventory? PON will increase. In other areas we are seeing down a bit, possibly due to continued inventory corrections. Marvell was down in Q4 less than competitors. We are seeing 10 Gig and switching wins begin to kick in. Backlog supports our view.

Gross margin decline causes? From year ago had about 4 point decline. New geometries were responsible for 1 point, foundry prices 1 point. We are switching from gold to copper, that should wrap up in 2012. Foundry diversification should help with pricing, but will also up mask costs. Also, when new products are introduced it also hits margins for a while. We still have the best gross margins in the industry.

Excess cash use? We believe our stock is undervalued. We intend to be active with buy backs.

In the current quarter HDD capacity recovery will mainly be outside Thailand. In March quarter Thailand capacity will begin to return. A lot of drives go into the PC industry, where current inventory will be consumed this quarter.

We have a 62% market share in HDD, we have a higher share of SSD today. So if there is a shift in notebooks from HDD to SDD, we would expect to benefit. We started research on SDD many years ago and have a huge technology advantage against competitors.

TD-LTE? Will address 4G data rates. We expect this to be deployed when the cost structure of the base stations make sense. So a bit in 2012 and then more rapid expansion in 2013. Handsets come 6 months to a year behind base stations. We have already sampled TD-LTE handset chips. TD-LTE will first be used just for data, so phones must continue to use TD for voice service.

Seagate and Hitachi HDD share? With Hitachi we have gained. We have most of the mobile space with them. Seagate should be ramping up next year.

Who are your SSD customers? We won't name names, but many OEMs are now using our controllers, because they are superior.

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Copyright 2011 William P. Meyers