Analyst Conference Summary

Marvell Technology Group
MRVL

conference date: December 3, 2009 @ 1:30 PM Pacific Time
for quarter ending: October 31, 2009 (third quarter fiscal 2010)

I own MRVL
Forward-looking statements

Overview: Fantastic quarter.

Basic data (GAAP) :

Revenue was $803.1 million, up 25% sequentially from $640.6 million and up 2% from $791.0 million year-earlier.

Net income of was $201.6 million, up 245% sequentially from $58.5 million and up 183% from $70.9 million.

EPS (earnings per share) were $0.31, up 244% sequentially from $0.09 and up 181% from $0.11 year-earlier.

Guidance:

Fourth fiscal quarter 2010: $820 to $850 million in revenues. Networking and storage sequential growth, with normal seasonal slowdown of wireless and mobile. 58.5% non-GAAP gross margin. $235 million non-GAAP operating expenses. $254 million operating profit. Other income $1.5 million. Tax $12 million. 670 million diluted shares. $0.33 to $0.39 non-GAAP EPS. $150 million free-cash flow. GAAP EPS about $0.09 less than non-GAAP.

Conference Highlights:

Very pleased with the third quarter. "Our sequential revenue growth was better than our revised guidance provided on October 26, 2009, as order momentum improved across all our addressable end-markets." Marvell emerged from a difficult year in good shape.

Cash and equivalents ended at $1.46 billion, up $185 million sequentially. Cash flow from operations wa $203.5 million. $196 million free cash flow. Inventories rose to $239 million from $211 million to deal with areas of tight supply. Long term liabilities are $174.3 million.

Non-GAAP, which excludes $34.4 million in stock-based compensation, $26.5 million amortization, $1.9 million restructuring, but adds back in the $32.6 million tax benefit: net income $231.8 million. EPS $0.35.

57.8% non-GAAP gross margin, among highest in history. 29% Non-GAAP operating margin.

New product revenue was about $80 million, about 10% of total revenue.

Mobile and wireless end market was up over 40% sequentially and was about 20% of total revenue. 2/3 of growth was from cell phone market, the rest from embedded WiFi. ARMADA processor family introduced. China Mobile launched OPhones based on Android technology with Marvell as a strategic supplier for about six OEMs, with more announcements expected [See China Smartphone press release]. PXA920 processor supports TD-SCDMA China 3G and Edge standards. A new RIM smartphone is also based on a Marvell processors. 811n products for wireless printers and other devices sales grew over 100%. WiFi-bluetooth combo device revenues grew 50% sequentially.

Networking end market sales were up over 25% sequentially and represented about 20% of total sales. This is a rebound in networking equipment market plus share gains in enterprise portion of business.

Storage end market grew by nearly 20% sequentially and represented over half of total revenue. Believes market share for drive SOCs grew to 60% on a unit basis. 2.5" drive market demand growth was particularly strong.

Cost of goods sold was $341.6 million, leaving gross profit of $461.5 million. Operating expenses of $291 million included $212.9 million for research and development, $35.4 million for selling and marketing, $16.7 million for general and administrative, and $26.5 million for amortization. Leaving operating income of $170.1 million. Interest and other expense was $1.4 million. Income tax benefit was $32.9 million.

Q&A:

Hard drive market dynamics? First quarter 2010 should continue to be helped by low cost of PCs. Our hard drive customers are optimistic.

Gross margin improvement and mix? We don't provide gross margin by end-market segments. Mobile and wireless end markets experienced very good growth, and your margin estimates for that segment may be off.

China Mobile processor market size? PXA920 is very specific, high volume, high performance for standards of China market. It is state-of-the art smart phone solution, but also cost effective enough for the mass market. Our aspiration is higher than any number anyone is throwing out yet.

Sustainability of gross margins? Semiconductor business gross margins should be on high end as prices go down, to offset other expenses. This is a fundamental shift. The numbers we have are fair numbers and we plan to maintain them as long as we can, and best-in-class semiconductor companies will need to achieve this range.

Are your customers in hard drives adding to inventories? We are on a consignment basis, so they do not need to build inventories of our chips. Full feature PCs, even laptops, are now under $500, which is building demand, especially in emerging economies.

Dividends? We do not believe we are out of the economic downturn, so it is too soon to talk about distribution of cash. Our bias is to have more cash than we need in order to not be at the mercy of banks.

China business going forward? We are optimistic about our work for China Mobile; we have been working with them for 2 years. TD-SCDMA 3G is the pride of China. We believe it will be the main technology in China going forward, so we expect a very strong second half of next year.

Visibility is much improved. Inventory is leaner. We have had some shortages and longer lead times, so customers are giving us more visibility.

O-phone success detail? PXA920 will be used by many OEM cell phone makers for the China market; not all of them will be O-phones. The main chip is the most highly developed ever, but we also have the chip set solutions (power, wi-fi, etc.) that go with this. Revenues will start to ramp in the second half of next year; not contributing yet.

Bluetooth Wi-Fi combo part growth? We are very happy with traction with this device is finally taking off. The ramp now is the first generation device, a second generation is in design now. Any device requiring Bluetooth and WiFi is a potential market.

Reviewed how integration of systems on a chip help everyone, including the OEMs and end customers, while lowering everyone's costs despite increasing Marvell's gross margin.

ARMADA initial end markets? Across the board. Chips range from low end to high end. The run on all the ARM software in the market. So the market is any consumer device from HDTV decoders to picture frames to Internet portals like netbooks to automotive display consoles.

Component shortages at drive manufacturers? During the upturn there were shortages, but our customers got their chips as quickly as they needed them because we can overnight improve our production to capture demand. We have the lowest power drive chips, highest performance, and also highest yield.

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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 2009 William P. Meyers