Analyst Conference News Summary

conference date: May 17, 2012 @ 1:45 PM Pacific Time
for quarter ending: April 28, 2012 (Q1, first quarter fiscal 2013)

Forward-looking statements

Overview: Beats guidance, initiates a dividend, allocates more money for stock repurchases.

Basic data (GAAP) :

Revenue was $795.4 million, up 7% sequentially from $742.7 million, but down 1% from $802.4 million year-earlier.

Net income of was $95.4 million, up 18% sequentially from $80.7 million, but down 35% from $146.9 million year-earlier.

EPS (earnings per share) were $0.16, up 23% sequentially from $0.13, but down 27% from $0.22 year-earlier.

Guidance:

Fiscal Q2 2013: 6 to 12% sequential revenue increase, $840 to $890 million. TD revenue up 20% in quarter. Non-GAAP gross margin 54.5%. 19% non-GAAP operating margin. Non-GAAP EPS about $0.28. $150 million free cash flow. GAAP EPS around $0.21.

Conference Highlights:

Strong results from TD-SCDMA smartphone chips in China and high-end storage chips led the way.

Dividend, first ever, of $0.06 per share to shareholders of record on June 21, payable on July 11, 2012.

Non-GAAP net income was $139 million, up sequentially from $127 million but down y/y from $189 million. Non-GAAP EPS was $0.23, up sequentially from $0.21 but down y/y from $0.29.

TD-SCDMA revenue grew 25% sequentially. Mobile and wireless end market down 1% sequentially, and up 14% y/y in typically seasonally weakest quarter. Was 29% of overall revenue. China Mobile targetted a higher TD smartphone growth rate. There were even some spot shortages. Outpaced nearest competitor, as Marvell took TD market share, expecting to take 40% of total market. Now designed into over 70 high volume hand sets. No single customer has over 10% of sales. Future product development is going well. WCDMA revenue ramping well, but still small. Mobile & wireless revenue to increase mid to high single digits in Q2.

Networking end market saw a 1% decline sequentially, against a 5% decline in the overall market. New products allowed for share growth. PON did particularly well, growing in double digits sequentially, and expected to grow over 20% in Q2. Mobile microwave backhaul has captured over 50% of next generation designs. Q2 revenue up mid-single digits sequentially.

Storage end market revenue up about 20% sequentially. Is 45% of total Marvell revenue. HDD unit volumes increased consistent with recovery from floods. 500GB/platter mobile drive solution grew very rapidly, as there is little competition. Expected to grow another 50% this quarter. Market transitioning to higher-capacity drives. 7mm form factor drive demand expected to ramp with low-profile notebooks (Intel ultrabooks). Enterprise HDD revenue was up about 20%. Began to ramp in 2 new designs, one to biggest HDD supplier. Competitor has been vocal about their products to Wall Street, while we were selling to our customers, and the results speak for themselves. We will extend our leadership and unit share.

SSD controller demand was in line with expectations, but softer due to availability of HDD. Believes demand will grow this year, and will grow market share. Overall storage market expected to see 10 to 15% sequential growth expected for Q2.

GAAP Gross margin was 54.0%, down sequentially from 54.1% and also down from 58.3% year-earlier. Non-GAAP gross margin was 54.5%, flat sequentially but down from 58.5% year-earlier.

Cash and equivalents balance ended at $2.20 billion, down about $44 million sequentially. Cash flow from operations was $199 million, actually up from the $177 million of year-earlier. Free cash flow was $178 million. $223 million was used to repurchase shares in the quarter. $500 million has since been added to the repurchase program.

Cost of goods sold was $366.3 million, leaving $430.0 gross profit. Operating expenses of $336.1 million included: $256.0 for R&D, $40.1 million sales and marketing, $25.7 million general and administrative, and $14.4 million amortization of acquired intangible assets. Leaving operating income of $94.0 million. Interest income $1 million. Income taxes $0.5 million.

Has a pipeline of growth opportunities going forward, including LED controllers.

Q&A:

How big is the 500GB/platter opportunity? It will be about one-third of units in Q2. The disruption of the industry in 2011 meant people produced whatever capacity drives they could. This quarter will see return to normalcy, which means favoring higher-capacity drives for any units that can be produced.

TD China market, sustainability of? A year ago people questioned whether the market even existed. It is not a niche market. It is the market of the customer base of China Mobile, 650 million. TD is the upgrade from 2G for these customers. We expect the number of units to continue to grow over the next few years. At some point the high-end customers will move to TD-LTE. Last year there were few competitors, this year we have many new competitors because they all believe there is going to be a big market. Competition is good, it drives adoption and lowers prices, as in any high-volume business. Older products will have price erosion, newer products can compensate somewhat. This is how it always works in the business, it is normal. We will invest in more advanced technology, we are already releasing TD-LTE modems. Competition will use price because they cannot match us on functionality today.

Seagate enterprise HDD ramp? We don't comment on particular customers, but we indicated before that we had won next-generation designs. We have multiple new designs for customers in that space.

Confidence of maintaining 60% of TD handsets for rest of year? Noise is from our competition. They are taking on Goliath. We have much higher than 60% currently. But we do expect more intense competition in the second half, but we are speculating until we see their real products and their performance.

We believe China Mobile set a target of 30 million TD smartphones this year. Outside of the carrier subsidies there could be an upside in low-cost devices.

High-end ethernet switch and PON are making share gains, which means we are growing faster than the overall market.

TD inventories? We saw an inventory decline in Q4, it burnt out in early Q1. It is not a China Mobile issue, but of the handset makers. We don't have great visibility, especially with the smaller handset makers.

Gross margins? We are qualifying more foundries, the diversification should give relief from wafer pricing. Gold was a problem, but in Q1 we began some conversion to copper. Mix will affect us, but we can manage through that. Expect moderate margin improvements.

RIM? We do not discuss particular customers. They have had their problems, we wish them well.

WCDMA? It is a small market, others are entering it. We think we are making good improvement in this segment.

M&A? We acquire IT, we do not do blockbuster deals because of their expense.

We believe at these prices our stock is grossly undervalued. For the dividend we looked at first dividends of other companies in our space and had a target of about 1.7%.

Q3 typically is back to school and Christmas build. So we expect it to show sequential improvement, but how big that is, it is too early to tell. We don't know what will happen in Europe. But despite the macro environment we have markets where we are gaining share and bringing out new products.

If Q2 is back to normal, why is projected revenue down y/y? We said recovery would be full by the end of the quarter, not a comparable quarter. Last year the July quarter saw some kick from disruptions in Q1.

HDD market share in Q1? Low point in flood saw our market share drop to 56% or so. In Q2 market share will be at least 60%, based on traction in mobile and enterprise spaces.

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