Analyst Conference News Summary

conference date: February 20, 2014 @ 1:45 PM Pacific Time
for quarter ending: February 2, 2014 (Q4, fourth quarter fiscal 2014)

Forward-looking statements

Overview: Strong Q4 (which is typically seasonally down) and guiding to good Q1 (also typically seasonally down).

Basic data (GAAP) :

Revenue was $931.7 million, up slightly sequentially from $931.2 million, and up 20% from $775.3 million in the year-earlier quarter.

Net income of was $106.6 million, up 3% sequentially from $103.2 million, and up 112% from $50.2 million year-earlier.

EPS (earnings per share) were $0.21, flat sequentially from $0.21, and up 133% from $0.09 year-earlier.

Guidance:

Q1 fiscal 2015 revenue is expected between $870 and $910 million, down 4% sequentially at the midpoint, which is better than normal seasonality. Gross margin 48.7% to 49.7% GAAP, 49.0% to 51.0% non-GAAP. Diluted EPS $0.12 to $0.16 GAAP, $0.20 to $0.24 non-GAAP. Free cash flow expected near $120 million.

Conference Highlights:

2013 (fiscal 2014) was a turnaround year for Marvell. "We are investing in advanced technologies that will help drive increased business opportunities and continued revenue and profit growth in all of our target end markets." Revenue was above high end of guidance due to higher than expected storage and networking demand.

Non-GAAP numbers: net income $151 million, down 7% sequentially from $163 million, and up 45% from $104 million year-earlier. EPS was $0.29, down 9% sequentially from $0.32, and up 53% from $0.19 year-earlier. Excludes $38 million non-cash stock-based compensation, $12 million amortization, and a $7 million gain on sale.

Non-GAAP gross margin was 50.1%, down sequentially from 50.3% and down from 53.2% year-earlier. GAAP gross margin was 49.8%. An inventory write down charge had a negative impact of 0.8%. 16% non-GAAP operating margin.

The HDD market (storage) market revenue was better than expected, up 3% sequentially. HDD saw increased demand, especially at the end of quarter. Customers are seeing good demand in non-PC areas. Accelerating investment in advanced HDD and hybrid technologies. SSDs had strong year/year growth, doubling for the full year. Market share in SSDs continue to rise. Overall growth was about 13% in fiscal 2014 over fiscal 2013. In fiscal Q1 the expectation is seasonally down single digits. 48% of total sales.

Mobile and wireless market results declined 14% sequentially, and missed initial expectations due to late product launches. Expects demand to return to normal in Q1. 3G shipments grew double digits y/y. In 4G LTE Marvell is hitting the markets just in time, and getting traction in high-volume portion of the Chinese market. In North America 4G LTE solution is fully certified; initial shipments this quarter. Wireless connectivity solutions grew y/y. For Q1 a low-single digit decline in revenue will result from seasonal effects, despite some 4G LTE ramping. 26% of total sales.

Network processing segment up 5% sequentially, driven by enterprise and service provider strength. Invested in a new fabric technology for datacenter and mobile infrastructure markets. For Q1 expectation is revenue flat sequentially. 18% of total sales.

Cash and equivalents balance ended at $2.0 billion. Cash flow from operations was $100 million. Free cash flow was $82 million. Nothing was spent on share repurchases. The dividend required approximately $29.9 million. Inventory was up $32 million sequentially to meet anticipated new product demand.

Cost of goods sold was $467.8 million, leaving gross profit of $464.0 million. Operating expenses were $363.9 million, consisting of: $288.9 million research and development; $36.7 million selling and marketing; $26.4 million general and administrative; $12.0 million amortization. Leaving operating income of $100.1 million. Interest income $12.6 million. $6.1 million income tax provision.

The quarterly dividend per share will remain at $0.06. "Developments in on-going litigation could affect Marvell's ability to pay the dividend on March 27, 2014 under Bermuda law, where Marvell is incorporated. In such an event, the dividend payment could be delayed until such time as Marvell can meet statutory requirements under Bermuda law."

Q&A:

4G LTE ramp volumes in first half? Millions of chips in the quarters of the first half, but it depends on the OEMs.

Networking growth in fiscal 2015? We are looking at diversifying from core enterprise and are already seeing some traction, including in mobile infrastructure. We are seeing some weakness in the traditional enterprise space. Any pickup would be more in second half.

Operating expense going forward? Q1will be higher due to a one-time event. But expense control will be tight in fiscal 2015, keeping them flat for the remainder of the year.

Foundry agreements? Some of our products need to be moved to more advanced process nodes. That would help with gross margins, as well as better products for our customers. Almost all products we build are moving to 28 nm this year. We look for the best prices among multiple foundry partners.

Avago purchase of LSI and other competitive changes? We focus on investing in advance technology; that is what gave us leadership to begin with. In storage we are absolutely committed to win and continue to invest well ahead of market needs. SSD was an example; we started investing in it 6 years ago and are now the leader. So we don't worry about what our competitors are trying to do.

There is not a consensus in the storage market industry whether TAM will be up or down this year.

LTE wins announced, including support chips, how does it compare to 3G? It is a highly competitive market, so we don't disclose ASPs. But LTE has a chip higher content dollar wise. As more countries move to LTE, it will be good for us. But 3G product demand remains good. We can't predict a crossover point (where LTE revenue exceeds 3G).

Any sense of LTE market share in China? We are working hard to capture as much share as possible, but it is too soon to make a prediction, partly because we don't know how many total LTE phones will ship this year. "We are probably going to get a sizeable chunk of it."

Marvell will also look to play in the low-cost LTE market; we ignored the low-cost 3G market.

LTE will have a higher gross margin than 3G, partly because there are only a couple of players in the market so far.

We will also release multiple advanced products in the LTE market over time. The carriers realize delivering LTE is cheaper than delivering over 3G. Eventually the market will move completely to LTE.

HDD market share? We continued to invest in technology when others thought the market was in decline. Greater than 60% in HDD and climbing, in merchant SSD greater than 50% and climbing.

We seem to be doing better in LTE wins than we did in Chinese 3G wins, where we came late to the market. We have a more mature smartphone team than we had five years ago.

Reason for no repurchases of stock in the quarter? We are fully committed to return cash to shareholders. We spent much more than free cash flow for several years to our shareholders with buy-backs. We are likely to return more like the industry average of 40% of free cash flow to our shareholders in the future, including dividends.

Size of video business? We don't want to disclose that yet, for competitive reasons. It is a rapidly changing market.

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