Analyst Conference News Summary

Marvell Technology Group

conference date: November 21, 2013 @ 1:45 PM Pacific Time
for quarter ending: November 2, 2013 (Q3, third quarter fiscal 2014)

I own MRVL
Forward-looking statements

Overview: Blowout quarter, way above guidance.

Basic data (GAAP) :

Revenue was $931.2 million, up 15% sequentially from $807.1 million and up 19% from $780.9 million in the year-earlier quarter.

Net income of was $103.2 million, up 67% sequentially from $61.8 million, and up 51% from $68.8 million year-earlier.

EPS (earnings per share) were $0.21, up 75% sequentially from $0.12, and also up 75% from $0.12 year earlier.


Fiscal Q4 2014 revenue seasonally down to $880 to $920 million. GAAP gross margin near 49.7%, non-GAAP near 50%. Operating expenses $350 to $370 million GAAP, $305 million to $325 million non-GAAP. EPS: GAAP $0.14 to $0.18; non-GAAP $0.23 to $0.27. 15% non-GAAP operating margin. $125 million free cash flow.

Conference Highlights:

Exceeded high end of guidance mainly on demand from mobile, wireless, and storage customers. Networking was below expectations.

Non-GAAP numbers: net income $163 million, up 38% sequentially from $118 million, and up 44% from $113 million year-earlier. EPS was $0.32, up 39% sequentially from $0.23, and up 60% from $0.20 year-earlier.

Non-GAAP gross margin was 50.3%, down sequentially from 52.2% and down from 52.3% year-earlier. Lower due to increased % of consumer chips, but should be temporary. 17% non-GAAP operating margin, up sequentially, on higher revenues spread over operating expense.

Sustained investments are resulting in new products and better-than-industry growth rates.

The HDD market (storage) market was tepid, but executed well. Up 3% sequentially, outperforming in HDDs. Good demand for non-PC applications, offset by PC weakness. Share gains in enterprise space, with shipments up over 20% sequentially. For SSDs had record units and revenue. Double digit sequential growth. Leading in PCIe solutions. Expects strong growth in the next fiscal year. Well positioned in hybrid market, when it grows. Expect low to mid single-digit seasonal decline in Q4. Was 46% of overall revenue.

Mobile and wireless market results up over 60% sequentially, much better than expectations. Mobile shipments doubled. 4G LTE solutions began shipments in Asia. Sell through remains strong. China Mobile used Marvell in its own-branded phone. LTE licenses granted in China in quarter. Expects 3G continued growth, plus 4G ramp up. In wireless connectivity revenue up over 50% sequentially, with multiple new products by non-mobile customers, including new game console launches. In Q4 expects a low single digit decline. Google Comcast design using Marvell chips did well. Was 31% of overall revenue.

Network processing segment down 3% sequentially, below expectations on weak enterprise demand. But PON grew. 28 nm solutions introduced. Expect low single digit decline in Q4. 17% of total revenue. Market recovery make take longer than previously expected, but making progress on new products.

Cash and equivalents balance ended at $1.8 billion, up 5% sequentially. Cash flow from operations was $177 million. Free cash flow was $157 million. $71 million was spent on share repurchases. The dividend required approximately $30 million. Inventory was up $45 million sequentially to meet anticipated new product demand.

Cost of goods sold was $465.0 million, leaving gross profit of $466.2 million. Operating expenses were $371 million, consisting of: $296.3 million research and development; $37.5 million selling and marketing; $26.6 million general and administrative; $10.6 million amortization. Leaving operating income of $95.2 million. Interest income $1.5 million. $6.4 million income tax benefit.

Next dividend of $0.06 to shareholders of record on December 12, payable on December 23.


LTE to Tier 1 shipping now? We are progressing well with LTE, and should ramp up next year. We are are just a bit behind Qualcomm, and ahead of other suppliers, in this areas. By second half of next year LTE demand could outstrip 3G. Today most shipments are still 3G. LTE handsets should be in the market by the end of the year.

Competitor claim on winning 3.5" desktop HDD slot? We are most comfortable in HDD, where we have out invested our competition over the years, and gained market share over 18 years. We don't expect any noise from the competition will impact us. We are gaining design wins for 3.5" desktop HDDs. We are several years ahead of our competition in HDD technology. We will also continue to gain share in the enterprise side.

Our HDD solutions are basically the same for client and enterprise; we build the best. We build what customers will need a few years from now. Our customers need us; they will get a worse solution from our competitor.

One chip, many wireless standards strategy? It is a compelling solution. Our quad-core platform continues to get design wins from top-tier OEMs.

Over the last year or so Flash memory finally became cheap enough to accelerate SSD growth. But HDD still preferred for anything cost-sensitive. We have integrated SSD with HDD controllers, which makes hybrid drives cost competitive.

3D NAND? Flash is approaching end-of-life for planar technology. There are challenges about moving to 3D. On the controller side the general functions are the same, but error correction may need modifications, because of 3D Nand reliability issues. We are prepared for that.

Connectivity business components? More diversified today, used to be mainly game consoles and printers. Now also mobile, wireless access points, tablets.

We are confident the tip in margins is temporary. The consumer products that ramped in the quarter will have better margins over time.

We remain committed to returning cash to shareholders using buy backs. We may be being more opportunistic, partly due to the CMU litigation.

R&D expense outlook? We are accelerating our investment in new products.

Taking Marvell private rumor? Investors come in and out. We welcome investors who believe in Marvell. There is really nothing to talk about.

CMU litigation? Still in post-trial. We are setting up the surety bond in advance. One we get a ruling, we are ready to appeal.

HDD market in 2014? We believe our HDD business will grow next year. The SSD business should grow very nicely. The SSD margins are better than HDD margins.

Better than seasonal January? Q1 is typically down from Q4; no reason to think that will be different this year.

A lot of our competitors are making noise about SSD, but the record is clear: our SSD controllers are the most reliable.

We don't believe transistor costs are going to go up at advanced manufacturing process nodes. R&D costs do go up. FinFet mask costs are going through the roof, but per transistor costs will continue to fall.

PC market visability? We are not the experts. But as more advance processors are built for PCs, people will buy them in the long run. You need to ask Intel. If PC units do go up, that would be good for us.

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Copyright 2013 William P. Meyers