Analyst Conference Summary

conference date: December 2, 2008 @ 1:45 PM Pacific Time
for quarter ending: November 1, 2008 (3rd quarter fiscal 2009)

Forward-looking statements

Overview: Preliminary announcement stated revenues would be in the range of $780 to $788 million, down 6 to 7% sequentially. Instead revenue was $791 million, and free cash flow on that was an amazing $246 million.

Basic data (GAAP) :

Revenue was $791.0 million, down 6% sequentially from $842.6 million but up 4% from $758.2 million year-earlier.

Net income was $70.9 million, down 1% sequentially from $71.4 million, but well up from a loss of $6.4 million year-earlier.

EPS (earnings per share) were $0.11, flat sequentially and up from a loss of $0.01 year-earlier.

Guidance:

4th fiscal quarter 2009: Order rates are down, inventories are being minimized. Revenues $690 to $730 million. Non-Gaap Gross margins 52.8%. R&D expense to be reduced to about $197 million. Non-GAAP EPS $0.14 to $0.20. Already paid off remaining bank debt.

Conference Highlights:

"We continue to experience limited visibility into the near-term demand for our products. We are taking the appropriate steps to align our operating expenses." Sequential decline was due to industry-wide downturn. We are seeing our customers hesitant to make long-term commitments. There has been real demand erosion, but also believe there has been an over-reaction and believe inventories are very lean.

Marvell will continue to expand its market share and entering new market segments.

Non-GAAP net income was reported as $145.3 million of $0.23 per share, down from $0.24 per share in Q2, but up 69% from year-earlier. Gross margin was 52.3%, up from 48.3% year-earlier. $40 million stock-based compensation expense.

GAAP gross margins was 52.1%.

Cash flow from operations was $258.5 million, up 41% sequentially. Free cash flow was $245.7 million. Cash and equivalent investments ended at $1.045 billion. The long-term loan balance ended at $192 million, with $100 million paid off. $13 million spent on capital expenditures.

Inventories were $339.5 million, up $13 million sequentially, but well-down from year-earlier.

Our operating expenses were well below our original guidance for the quarter. We reacted quickly to the early warning signs of an end market slowdown. Even in the current environment we will have good cash flow. New customers continue to sign up for our products. Our technology and commitment to R&D are clear differentiators.

Cost of goods sold was $379.1 million, leaving gross profit of $411.9 million. Operating expenses of $339.1 million include $234.2 for R&D, $41.2 million for selling and marketing, $28.9 million for general and administrative, and $34.8 million for amortization. Leaving operating income of $72.8 million. Interest and other income was $11.5 million. Income tax provision was $13.4 million.

CX Internet switching products were announced in quarter, supports 48 ports of 10 gigabits on a single chip. Should see revenues from this by second half of 2009.

Chips started shipping to Fujitsu for storage systems months ahead of schedule.

Cellular communication processor had strong increase demand, which is in RIM Bold smartphone.

Notebook PC and smartphone convergence gives us major new opportunities. Marvell has all the building blocks to address this market; we can provide a complete solution that would sell for between $100 and $200 within 1 year.

Half of shortfall on original guidance was due to PC end market, another 20% due to weak wireless demand. Storage revenue grew 16% y/y, but declined sequentially.

Sales were front-end loaded in quarter.

Q&A:

Backlog decline since early November? It has eroded a little bit since our last call.

Reducing SG&A expense? We are looking everywhere for reduction, the opportunities are greater in R&D since we are already best-in-class for SG&A for % of revenues.

Any inventory writedowns anticipated? Majority of customers are pulling products on a real-time basis. We are the single source for most products. The inventory risk is pretty minimal except at product transitions. We ended the quarter with more inventory than we would have preferred, but will continue to tighten up.

Layoffs? Reduction in R&D is mainly through limiting the number of products we are developing (eliminating low volume products). New hiring is being tightly managed.

Confidence is customer over-reaction statement? There are early indications that customers are having to order quickly because they underestimated demand on specific products. We try to produce those parts on a fast-track basis. Our customers are no more clairevoyant than we are.

Headcount? 5541, up 88 sequentially but down 212 from year-earlier.

Pricing effects? For storage drive components it is competitive as usual.

Are you in the Blackberry Storm? We are in the Bold, not the Storm. Bold has highest performing 3G throughput in the market. We believe we are second in the 3G space after Qualcomm.

We have a couple of very important new engagements in optical. We are delivering complete platforms to these customers. We have several new Bluetooth customers.

Lagging segments in January quarter? PCs, followed by end consumer type products.

Plans for cash use? Up until now we were paying off the debt, we have completed that. Now we will look at investing and share buy backs. In this economy we do want to keep a fair cash balance.

Design wins for Netbooks? We are very optimistic about this market. We believe this will add 1 to 2 billion customers world wide if we can hit $100, which will require all functionality in a single chip. All the XScale software will get use here. We have a number of designs in the wings.

What if the recession is not short? Of course we are concerned about that. But we must focus on what we can control and influence. We can enter new markets even in a downturn. We have some new products that are almost ready for release.

In 12 to 24 months? We will see significant Blu-ray and HDTV revenues.

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

Search

More Analyst Conference Pages: