Analyst Conference News Summary

conference date: May 26, 2011 @ 1:45 PM Pacific Time
for quarter ending: April 30, 2011 (first quarter fiscal 2012)

Forward-looking statements

Overview: Revenues at low end of guidance, but higher than the shorts expected.

Basic data (GAAP) :

Revenue was $802.4 million, down 11% sequentially from $900.5 million and also down 6% from $855.6 million in the year-earlier quarter.

Net income of was $146.9 million, down 34% sequentially from $222.9 million and down 29% from $205.8 million year-earlier.

EPS (earnings per share) were $0.22, down 33% sequentially from $0.33 and down 27% from $0.30 year-earlier.

Guidance:

Q2 fiscal 2011 ending July 30, 2011 revenues $870 to $910 million. Non-GAAP 58.0 to 58.5% gross margin. 630 million diluted shares. Non-GAAP EPS about $0.37. Over $200 million free cash flash. GAAP EPS about $0.05 lower than non-GAAP.

Conference Highlights:

Results largely reflected consumer end-market seasonality. "We remain confident that the investments we are making such as in TD-SCDMA [OPhone] and SSD [solid state drives] will result in improved results throughout the year." This is the low point of Marvell's revenue cycle.

Non-GAAP numbers: net income $189 million, down sequentially from $273 million and down from $260 million year-earlier. EPS $0.29, down sequentially from $0.40 and down from $0.38 year-earlier. Gross margin 58.5%, down both sequentially and y/y. Excludes (from GAAP) $27.5 million in stock based compensation, $14.3 million amortization, $0.6 million for restructuring. 24% operating margin.

Cash ended at $2.27 billion, down from $2.93 billion. Cash flow from operations was $177, down from $251 million year-earlier. Free cash flow was $157 million. $800 million was spent to repurchase 50 million shares (that is 8% of outstanding shares). Inventories grew to $299.1 million, up about $54 million in the quarter.

Mobile and wireless revenues declined over 30% sequentially. 25% of overall revenue. Worse than anticipated due to pronounced seasonality and softness at one customer [Blackberry RIM]. Stressed this is still an important market and has over 20 customer handsets supported. Sampling LTE solutions with key customers. Will continue to be a significant player in this space. Winning about 80% of TD designs on OPhone and Android platforms, so should see significant growth this year in China. Shipped single-chip solutions for TD in Q1 and will ship significantly in Q2.

Next generation devices will need Marvell MIMO wireless connections; designed into next generation tablets. Mobile and wireless end market expected to grow by 20% in Q2.

Storage market revenues were down 1% sequentially. 49% of total revenues, a bit better than forecast. Did see a negative impact in Japan for HDD. See a better Q2 in Japan. Increased SSD ramp more than made up for the shortfall. Confident will benefit from consolidation in SSD industry as new platform ramps, but timing is market driven. On track to double SSD sales this year. Dragonfly virtual storage accelerator introduced. For Q2 sees low to mid-single digit growth.

Networking segment up 4% sequentially. Was 21% of revenue. Better than expectations. New products introduced for next generation networks. For Q2 expect mid-single digit sequential growth.

Cost of goods sold was $334.5 million, leaving $467.9 million in gross profit. Operating expenses were $319.8 million, including: research and development $$242.5 million; selling and marketing $38.2 million; general and administrative $24.8 million; amortization of acquired intangibles $14.3 million. Leaving operating income of $148.1 million. Interest and other expense was $0.2 million. Income tax provision $1.0 million.

Higher commodity prices, including gold, and new tape-outs had a negative effect on margins. Also spent in preparation for new product launches.

Q&A:

Q3 seasonality? More than half our business is consumer centric, driven by back-to-school and Christmas seasons. October quarter usually increases from Q2, then Q4 is typically down.

TD revenues? We have 80% design wins for TD, but most of those wins are not in production yet. We have a majority of SSD design wins, leveraging our HDD knowledge. But we need to be cautious about being specific about the timing of ramps. At the end of last year we were selling high-single millions of SSD chip revenue per quarter. As we go through the year we will gain TD customers in production and will see how big the opportunity is.

HDD customers changing from sole sourcing? The benefits of our technology in HDD has tended to overwhelm the down-sides of sole-sourcing.

Wi-Fi tablet opportunities? Almost all past and current smartphones and tablets use 1 x 1 solutions. Customers want more reliability and range. MIMO technology is a must for this; we are actually one step beyond MIMO already, by making it a low-power technology with beam forming. This can be used in tablets that do not use our processors.

Networking new products or customers? We have new products and customers in China. Your guess is as good as ours on end-market demand. But we will have new products that should ramp revenue even if end markets are flat.

Dragonfly product update? Customer reaction has been "very, very good." Will take six months or more to bring to market, so for revenue is a 2012 story.

Does your full year outlook remain unchanged? We have to be cautious because of the macroeconomic environment. It is just hard to predict the success of new products coming to market, but we believe it will be very good.

SSD margins should be higher than HDD. TD margins will start high, but we expect more competition down the road.

We expect new Marvell-based designs from the particular customer [WPM: RIM]; you will see them when they come out. Would not comment on timing of QNX solutions.

Later this year our designs will go to 28nm (from current 40nm) requiring tape outs that are affecting margins. Because of price of gold, moving aggressively to copper.

You have promissed growth based on new products for 2 years, what could you have done different to achieve that? If you take out the one problem customer, that is 10%, outside of that the business has grown. Look at networking, where we are gaining revenue and market share. TD and SSD have not had a big impact yet, but are growing rapidly. It is true that storage has been flat for a couple of years. TD (TD-SCDMA), which was invented in China, is a big opportunity, with 600 million China Mobile customers who we be changed over to it. More than 220,000 TD base stations have already been employed.

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