Analyst Conference News Summary

conference date: November 15, 2012 @ 1:45 PM Pacific Time
for quarter ending: October 28, 2012 (Q3, third quarter fiscal 2013)

Forward-looking statements

Overview: Unseasonal sequential revenue decrease on PC industry weakness, as expected.

Basic data (GAAP) :

Revenue was $780.9 million, down 4% sequentially from $816.1 million, and down 18% from $950.4 million the year-earlier quarter.

Net income of was $68.8 million, down 26% sequentially from $93.1 million and down 65% from $195.1 million year-earlier.

EPS (earnings per share) were $0.12, down 25% sequentially from $0.16 and down 63% from $0.32 year-earlier.

Guidance:

For fiscal Q4: revenue $700 to $740 million. Non-GAAP gross margin near 53%. About $310 million non-GAAP operating expenses. 10% non-GAAP operating margin. Shares 560 million. Non-GAAP EPS $0.13 plus or minus $0.02. GAAP EPS $0.05 plus or minus. $60 million free cash flow.

Conference Highlights:

Poor quarter "affected primarily by the slowdown in PC demand." Results in line with previously updated guidance. Focusing on gaining share in hard drive (HDD) and solid-state drive (SSD) controllers.

Non-GAAP numbers: net income $113 million, EPS $0.20, down from $142 million and $0.24 year-earlier respectively. Gross margin 52.3%.

There was $30 million stock-based compensation expense included in GAAP but excluded from non-GAAP.

GAAP gross margin 52.0%

Marvell remains focused on advancing technology in major market opportunities. Biggest opportunity is now the wireless and mobile end market. Goal is to become a top player in this market. "We are currently going through a product transition in mobile." We are realigning our strategy for future success. New TD/WCDMA platform already has three major handset wins and will help in white box market, where about a dozen customers will introduce devices for revenue in next fiscal year. Short term goal is to get 10% of the global WCDMA market by the end of 2013. 4G LTE modems are now being integrated into Marvell devices. "We are confident in our mobile strategy."

For wireless connectivity, expanding to 2x2 combo solutions with advanced beam forming technology. This is a significant opportunity in tablets. Already sampling next generation roadmap.

In storage we are gaining market share. We continue to invest in storage and are bringing new technologies to market both in HDD and SDD markets, including hybrids. Our chips are being used in some ultrabooks.

Storage revenue was down 3% sequentially and represented about 47% of total sales. HDD declined 5% sequentially, probably a market share gain based on 500 GB/platter technology. SSD revenue increased over 25% sequentially on new customer ramps.

Networking revenue down 1% sequentially. 23% of total revenue. Double digit growth in enterprise switches offset by inventory correction in infrastructure customers.

Mobile and wireless down 10% sequentially and represented about 25% of total sales. Growth from new tablet product offset by lower than anticipated demand for gaming solutions. Also enterprise access point inventory correction. Expects new product revenue to ramp in first half of 2013.

In networking we are doing quite well and see future opportunities. Network traffic is growing rapidly from smartphones. Network providers need advanced solutions for switching. New products will effectively address new needs. Infrastructure access market is also evolving, and Marvell "is seeing some traction in this area" with PON. Marvell is expanding into datacenters with low-power solutions based on ARM.

Marvell remains committed to returning cash to shareholders.

As to CFO resignation, we have built a strong team and the Comptroller will fill the role while a search is done.

Cash balance ended at $2.0 billion. $203 million was spent on share repurchases. $0.06 per share paid in dividends [about $33 million]. Cash flow from operations was $137 million. Free cash flow was $113 million.

Cost of goods sold was $374.5 million, leaving gross profit of $406.4 million. Total operating expenses of $339.6 million consisted of: $263.6 million for R&D; $38.4 million selling and marketing; $24.5 million general and administrative; and $13.1 million amortization. Leaving operating income of $66.8 million. Interest income $2.4 million. Income tax $0.4 million.

Inventory down in terms of days,

Q&A:

Mobile and wireless segment overall inflection higher? Expects revenue to start moving up in first half of 2013. By end of 2013 10% of WCDMA of market.

Buyback plans? We are committed to continuing the buy back at current levels or higher. We think the stock is undervalued right now.

Gross margin decline? While margins have declined lately, we have a good track record overall. We look for a 50% to 55% gross margin target range. Operating margin goal is 20% of better.

R&D increase and margins? R&D has been up over the last couple of years because mobile and wireless business is difficult to enter. It is a short term issue, and the percentage has been reasonable. We are also aggressively investing in storage technology. We are committed to maintain our expenses to flat in 2013 from 2012.

Wireless down 30% guidance? Overall revenue in segment is about half mobile, about half wireless connectivity. Gaming typically drops off 50% in Q4. Will see traction in WCDMA.

There is some inventory reduction in storage right now. We are doing better than the competition in the SSD market.

Networking infrastructure business could grow 8% to 10% in the next year.

PON has had strong traction for 5 quarters in a row.

2013 growth drivers? Mobile and wireless, especially the second half of the year. It is the largest market opportunity for anyone to address. We are facing headwinds last quarter and this quarter, we are confident the new platforms will get us pass the headwinds. SSD is another growth level as prices become more reasonable. Hybrid SSD/HDD will be a big growth market. For networking, PON and network processors will drive growth.

Flash controllers for enterprise side? It is a smaller business. We are selling enterprise devices, but most controllers go to PCs.

Need for higher investment in mobile due to competition? We believe we made sufficient investment to get us into a good position for 2013, so can stay level now.

Low power datacenter processors? Recall when Sun Micro servers dominated datacenters? We stuck with Sun for 3 or 4 years after it made sense to move to x86 architecture. Reason is the need to port applications. Same for transition for transition to ARM in datacenters. It will take some time, so investors need to adjust their expectations. We do have a 32 bit ARM solution available with 40 bit addressing, and must invest in this field because of its long-term potential.

In TD-SCDMA market, will be happy to maintain market share in 2013.

White box phone market in China vs. Qualcomm and MediaTek? This is a very important market to address. We are not shy entering this market, which is evolving away from cheap feature phones to economical smartphones. We will have opporating margin leverage in this market. We build Qualcomm performance for a MediaTek price.

We are the only suppliers for 2.5" 500GB per platter, we shipped about 40% 500GB this quarter, and most of the market is moving to 500GB in 2013.

Why is your R&D % spend higher than competition? Because we don't set R&D to current revenue but to future addressable markets.

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