Analyst Conference News Summary

conference date: August 16, 2012 @ 1:45 PM Pacific Time
for quarter ending: July 28, 2012 (Q2, second quarter fiscal 2013)

Forward-looking statements

Overview: Missed prior guidance, but above what most expected given the global economy.

Basic data (GAAP) :

Revenue was $816.1 million, up 2.6% sequentially from $795.4 million, but down 9% from $897.5 million in the year-earlier quarter.

Net income of was $93.1 million, down 2.4% sequentially from $95.4 million and down 52% from $192.4 million year-earlier.

EPS (earnings per share) were $0.16, flat sequentially from $0.16, but down 48% from $0.31 year-earlier.

Guidance:

For fiscal Q3: revenue $800 to $850 million, below typical seasonality. Non-GAAP gross margin near 53.5%. Non-GAAP Operating margin near 17%. Non-GAAP EPS $0.24 plus or minus $0.02. $125 million free cash flow. GAAP EPS $0.16 plus or minus $0.02.

Conference Highlights:

The macro-economic slowdown hurt in the storage and mobile device markets, but SSD (solid state drive) and networking revenue continued to grow with new products.

Leading North American cell phone customer (RIM) demand and overall China smartphone demand were weak.

Storage market revenue up 7% sequentially, now 47% of revenues. Expects flat market demand in Q3 rather than the usual seasonal uptick. 500 GB per platter mobile technology is ramping well. Small form factor, 7 mm, HDD also doing wll. 5mm form factor will be next step. SSD business ramped 25% sequentially from new customer ramps, and design win momentum remains strong, including in Ultrabooks. Expects 25% SSD growth. But low single digit growth in storage market as a whole despite market share gains.

Mobile and wireless down 5% sequentially, with 27% of total revenue. TD smartphone revenue in China declined due to lower demand and higher competition. Next generation unified platform TD+WC announced this week and sampling this quarter. Main competitors address TD and WC on separate platforms. Will extend to other 4G platforms by early next year. Wireless connectivity products address new consumer electronic devices as well as mobile devices. Will see in market early next year. Embedded Wi-Fi chips selling well, holding 75% of market, but expects weaker than seasonal demand in Q3. Google TV platforms with Marvell chips now shipping. For Q3 sees a mid-single digit decline in revenue mainly due to cell phone demand weakness in North America and China.

Networking grew 4% sequentially. 22% of total revenue. Outperforming the market due to growth in PON, network processors, and low-power Armada processors for servers. For Q3 expect low single digit sequentially growth driven by new products.

Non-GAAP numbers: net income $142 million. EPS $0.24, up sequentially from $0.23 but down from $0.38 year-earlier. Gross margin 53.6%, down sequentially from 54.5% and from 58.1% year-earlier. Excludes $33 million stock based-compensation expense.

GAAP gross margin was 53.2%, down sequentially and y/y.

Ending cash and equivalents balance was $2.13 billion. Cash flow from operations was $189 million. Free cash flow was $174 million. $250 million was spent to repurchase shares.

Cost of goods sold was $381.8 million, leaving gross profit of $434.3 million. Operating expenses of $344.0 million included: Research and Development $264.2 million; selling and marketing $41.0 million; general and administration $25.7 million; amortization of acquired intangibles $13 million. Leaving operating income of $90.3 million. Interest and other income wa $5.9 million. Income tax provision $3.1 million.

Q&A:

Storage market, overall? Key drivers for Marvell's growth are small form factor mobile drives, of which Marvell is the only supplier of the newest technology. SSD and hybrid drives will also continue to be a growth area, especially as we move to 5mm. The hybrids will be added to tablets, where the outlook has assumed they would be pure SSD.

Are you capturing more content per unit with the new technologies? Yes, the solutions are quite a bit more complicated for hybrids, but the overall hybrid device will cost less than a traditional HDD with a separate SDD.

TD mobile, macro vs. competition? Those are hard to differentiate. China Mobile's predictions of addressable market have not worked out. In June quarter we still had 60% share. One competitor is very price sensitive.

Margin prospects, foundry diversification? We already added one of the additional three quantities, as volume quantities. The second is now qualified and new products should come out in 2013. It is on track, but is a long process.

White phone market in China Mobile, vs. branded phones? That is a very fragmented market. We have north of 80 devices in the market. Our presense in white phones is in pretty good shape.

WC+TD chips will address very high volume, but price-sensitive, markets. This will make development by our customers much easier. We make huge investments in the software so the our customers would have a working solution platform. When we move to LTE next year our technology will be way more mature than the competition. We are very, very serious in this business, it is the biggest semiconductor market in the world. "We cannot blink, we will not step back for any reason."

Divergence from hard drive customer shipment reports? Was not from share loss. Both the two biggest players have indicated slowdown for Q3. Usual seasonal growth is north of 10%. They said they slowed their production at the end of their reported quarters, and we have our fiscal quarter one month later, so our Q2 caught their early Q3 slowdown.

The difference between Chinese white phones and mainstream smartphones will not be in the software or hardware, but in the form factors like screen size.

When should differentiators for Chinese smartphones result in market share stabilization? We should have done the combined WC+TD earlier. The loss of market share was while we focussed on this solution. We were battling TD and 3G on two separate fronts. Now we can address both with a single platform, plus LTE next year. LTE will allow us to address developed nation markets as well.

SSD sub-segments? Most of our revenues are on the client side. We do have enterprise content, but the growth opportunity is on the client side.

North American mobile customer [RIM]? Lower going forward. We do have high hopes that they will recover, but now our solutions can address other North American customers.

Continuing to move from gold to copper in chips to reduce costs and improve margins.

Use of cash? We return value mostly through buy backs, but will continue the dividend.

Yes, the WCDMA market is more competitive, but it also bigger. We are not going to be shy going after this market. Our expense was largely in building resources for TD that can be used for WC. So we should get more profit out of the same investment.

Combined mobile ramp? We are sampling this quarter. We believe we will gain a lot more 3G customers as a result.

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