Analyst Conference News Summary

Marvell Technology Group
MRVL

conference date: February 23, 2012 @ 1:45 PM Pacific Time
for quarter ending: January 29, 2012 (Q4, fourth quarter fiscal 2012)

I own MRVL
Forward-looking statements

Overview: Poor quarter due mainly to Thailand flooding impact on hard disk drive (HDD) chip sales.

Basic data (GAAP) :

Revenue was $742.7 million, down 22% sequentially from $950.4 million and down 18% from $900.5 million in the year-earlier quarter.

Net income of was $80.7 million, down 59% sequentially from $195.1 million and down 64% from $222.9 million year-earlier.

EPS (earnings per share) were $0.13, down 59% sequentially from $0.32 and 61% down from $0.33 year-earlier.

Guidance:

Q1 fiscal 2013 ending in April revenues flat to up 6% sequentially. Non-GAAP gross margin near 54.5%. $295 million non-GAAP operating expense. Near 16% non-GAAP operating margin. Non-GAAP EPS $0.20 plus or minus a couple of pennies. $120 million free-cash flow generation expected. GAAP EPS 6 to 8 cents lower than non-GAAP.

Conference Highlights:

Aside from the HDD flooding disaster, "Our China TD [smartphone chip] business is now producing tangible results, our SSD revenue has exceeded expectations and our networking business is growing due to new products and share gains." Expects steady improvements in each end market in fiscal 2013.

Disruptions at a major customer [RIM], the Japan earthquake and the Thai floods had an overall negative impact on fiscal 2012 revenues of about 10%. Yet still managed positive cash flow and non-GAAP EPS.

Non-GAAP numbers: net income $127 million, down sequentially from $244 million and $233 million year-earlier. EPS was $0.21.

Cash, equivalents, and investments balance ended at $2.49 billion. Inventories increased to $354.1 million due to HDD situation, and in anticipation of its resolution. Stock-based compensation expense (non-cash) was $31.4 million. Cash flow from operations was $69 million; free cash flow was $38 million. $186 million was used to repurchase stock.

There was softness in demand for mobile and wireless market, particularly in China. Revenue decreased about 21% sequentially, to represent 31% of overall revenue. Sequential decline was driven by seasonal patterns but was worse than anticipated due to some inventory level reduction in China. Marvell is still the only maker of a TD single chip solution for Chinese smartphones, and ended the year with a 70% TD market share. Expects to expand in coming year. Marvell also is ready with TD-LTE products. Wireless connectivity revenue declined sequentially in double digits due to seasonal decline in sales to game console customers. This was expected. For Q1 fiscal 2013 expects a sequential single digit decline due to seasonality.

Networking end market revenue declined 1% sequentially, in line with original guidance, representing 23% of total revenue. Performed better than most peers. Acquired several small companies with strong products, giving Marvell a full line. Q1 expected relatively flat.

Storage end market down 31% sequentially, shrinking to about 40% of total revenue. This was mainly due to the Thailand flood. Believes HDD industry is recovering. Now Marvell is looking to multiple quarters of sequential growth as industry capacity recovers. Newest generation of HDD chips sales grew strongly in the quarter, with no real competition yet. SSD revenue more than doubled in the quarter, but still small compared to HDD. Q1 expected to grow 10 to 20% sequentially.

Armada 1500 application processor has won design wins, including Google TV. In the microcontroller market, dominated by other players, by introducing integrated wireless, notably ZigBee, Marvell has an opportunity to enter this large market. Smart energy appliances are a target market. Already made some design wins.

Non-GAAP gross margin was 54.5%, operating margin 16%.

Cost of goods sold was $341.1 million, leaving gross profit of $401.6 million. Operating expenses of 4331.6 million included $255.3 million for research and development, $40.4 million for selling and marketing, $23.2 million for general and administration, and $12.7 million amortization of acquired intangible assets. Leaving operating income of $70.0 million. Interest income was $5.3 million. There was an income tax benefit of $5.4 million.

Diluted share count 599.3 million.

Q&A:

Storage business recovery? Recovery was a little bit slower than we expected earlier, but trajectory is the same. About half of recovery in April quarter, the rest in July quarter. Some in industry think it will be slower, but Marvell ships earlier into the build cycle.

TD mobile competition? We are getting ready to introduce a second generation device and are working on the third generation. Also forking TD into multiple cost tiers.

TD inventory situation? In Q3 demand exceeded our expectations and we had to allocate among customers. Then tier 2 and tier 3 customers over-ordered. In Q4 inventory correction. In Q1 new year holidays and TD stability, then resumption of growth in Q2. We have added significant customers and more content to customers.

Inventories of finished hard drives are practically zero. CNC machines for parts-making are now being replaced by more advanced machines. These can produce parts for more advanced, thinner HDDs, which is encouraging to Marvell.

Content increase in TD phones? We add in new silicon functions, replacing other people's functions with Marvell's.

In HDD, when we started we had maybe 20 competitors. Now we have just 1. The newest technology, with our SoC but new motors for 500 GB per platter, is limited by component production, but that should correct in the next few months. Everyone wants more capacity, and for now we are the only one with the SoC for it.

Ultrabook designs, SSD vs. HDD? We have been investing in SSDs for over 6 years, and they have certain advantages. But HDD have cost advantages, which need to be thinner than in the past, and soon we will move to 5mm drive technology. To lead in ultrabooks you need to be in both, or have a hybrid solution, which we also have, because cost is important to most end customers.

Non-Chinese wireless customer trends? WCDMA is starting to ramp, but with much more competition than in TD. Largest customer [RIM] demand has been stable for a year now.

TD market outlook? 20 to 30 million units of TD smartphones in 2012.

SSD ramp, any due to HDD shortage? Yes, that and the pre-existing SSD ramp. But in 2012 ultrabooks will be a driver for SSDs.

WCDMA by geography? China first, the OEMs are in China but will market the products in Europe, South America and Asia. It is hard to predict exactly where they will market the products. We know because our engineers are working with them to do the carrier qualifications.

Gross margins? Two main negative effects besides lower revenues, wafer costs and gold costs. Moving most new designs to copper and lower wafer costs with a second source and new process technologies. So margins should improve in second half. Even today our margins are the best in the industry.

Believes will gain HDD market share in 2012 due to design wins from 2011 and 2010, as the new factories are refilled with new equipment.

TD-LTE has two segments. China market must be backward compatible with TD-SCDMA, where we have an advantage. Newer markets will be TD-LTE, where we will compete with the biggest cell phone chip makers in the world.

R&D spend? TD-LTE, SSD, hybrid are the big investments. We will continue to increase R&D spend, but at a lower rate than last year.

The same technologies that revolutionized the telephone business are now going to revolutionize the TV and set top box businesses. So the Google TV is a big opportunity for Marvell. There was entrenched competition from the two top suppliers, but we prepared over the last five years to intercept the trend when the future created an opening.

OpenIcon Analyst Conference Summaries Main Page
Marvell Investor Relations page
Openicon Marvell main page

Search

More Analyst Conference Pages:

 
 ADBE
 AKAM
 ALTR
 AMAT
 AMD
 AMGN
 ANSV
 BIIB
 CELG
 CSCO
 DNA
 DNDN
 GILD
 GOOG
 HILL
 HPQ
 INTC
 HNSN
 MCHP
 MRVL
 MSFT
 MXIM
 NOVL
 NVDA
 ORCL
 ONXX
 RACK
 RHT
 TTMI
 XLNX
 YHOO

 

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. We try not to make errors, but it is possible. Before making or terminating an investment you should always verify any factual basis of your decision.

Copyright 2012 William P. Meyers