Analyst Conference Summary

conference date: May 20, 2010 @ 1:45 PM Pacific Time
for quarter ending: May 1, 2010 (first quarter fiscal 2011)

Forward-looking statements

Overview: Solid quarter with sequential and y/y revenue growth.

Basic data (GAAP) :

Revenue was $856 million, up 2% sequentially from $842.5 million and up 64% from $521 million in the year-earlier quarter.

Net income of was $206 million, up <1% sequentially from $204.8 million and way up from negative $111 million year-earlier.

EPS (earnings per share) were $0.30, down 3% sequentially from $0.31 but up from negative $0.18 year-earlier.

Guidance:

Fiscal Q2 2011 revenues of $900 to $930 million due to new product introductions. Non-GAAP gross margin 59 to 60%. Operating margin 29% to 31%. Non-GAAP EPS $0.38 to $0.43. GAAP EPS lower by about $0.07 per share.

Conference Highlights:

Sales of new products, and to new customers, were significant, at about $135 million, especially in the mobile and wireless markets. Revenues grew 2% from January quarter despite this being a typically seasonally down quarter. Seeing signs of the upward inflection point talked about on prior conference.

3G communication processor demand was strong. WiFi growth, especially 802.11n Everstar products, was also strong. New product growth should continue in fiscal Q2; should be greater than 20% of total revenue.

Non-GAAP numbers: net income $260 million, EPS $0.38, down sequentially from $266 million and $0.40 respectively, but up y/y from $32 million and $0.05. Gross margin was 60.6%, up from 60.0 sequentially. $27 million stock based compensation and $23 million amortization of intangibles were the main items left out of GAAP.

Cash flow from operations was $256 million, down sequentially from $281 million but up from $145 million year-earlier. Free cash flow was $237 million. Cash and equivalents balance ended at $2.11 billion. Inventories were lean at $206 million.

Mobile and wireless end market accounted for 22% of revenue, with 18% sequential growth. Smartphone programs continue to ramp. WiFi grew 6% sequentially. In Q2 25% sequential growth is expected as new design wins launch.

Networking revenues were down 5% sequentially, accounting for 20% of total sales. This should improve in mid-single digits sequentially in Q2 due to enterprise market.

Storage market sales were essentially flat sequentiall, accounting for just over half of revenue, in line with expectations. Expected flat to slightly down in Q2 reflecting typical seasonality.

Cost of goods sold was $344 million. Gross profit $512 million. GAAP operating expenses of $303 million included: R&D $219 million, selling and marketing $38 million, general and administrative $23 million, amortization and write off of acquired assets $23 million. Operating income was $208 million. Other expense $4 million. Income tax benefit $1 million.

Trying to increase inventories, but supply chain tightness and customer demand are making that difficult.

Q&A:

Europe? No specific order pattern changes in Europe. We are aware that demand could be affected in Europe on the PC side, but have not seen anything yet.

Capacity shortage? Tightness continues, but should improve slightly in Q2. A bigger concern would be in the second half of the year when we try to ramp new design wins. We are working with suppliers to alleviate this.

Any visibility into Q3 seasonality? No color on Q3 yet, but as driven by back-to-school, which is less discretionary than holiday sales.

Operating expense trends? Design pipeline will cause a level of revenue growth that will require expenses to support. Up about $10 million next quarter. 31% operating margins are a good long term model.

Is supply tightness the same across business segments? We use one particular foundy for all the segments. The tightness would be when we get to 40nm products, but we are not shipping any today, probably not until Q3.

Storage market share gain? Our Q2 ends in July, which includes some back-to-school. Replacement rate for laptops is much higher than for PCs, which helps storage demand as shift to laptops considered.

Cell phone, smartphone business? We don't comment on specific customers. We expect all customers to continue to increase this year. OPhone shipments are mainly ahead of us.

iPad market? This is exactly the kind of market we have been targetting, markets that require low power, fast processing and video capabilities. It is a higher-end version of Marvell's cell phone chips. WiFi is our strength. It depends on which market (China, etc.) we target.

Networking segment? Trends were customer specific, should see improvement in Q2.

Use of cash? Holding cash for now. Our customers are getting much larger; they want to see we can survive under any conditions. We are being prudent before implementing any share buy back program.

How are you going to diversify out of storage without a major acquisition? We believe the mobile market, which we entered by buying the Intel division, will be far larger than the storage market. We put a lot of effort into developing our internal technologies that are useful across end products, like HDTV.

Possible hard drive competition? We started competing in 1996, they say they are going to get design wins from us at regular intervals. But we have superior technology they can't match, have not been able to match.

WiFi combo chips, what do they go into? Phones will be the biggest market eventually. Tablets too. Consumer TVs may or may not have combo devices. We have many design wins on the combo device in the smartphone market.

Tax rate model? 5% to 8%.

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