Analyst Conference News Summary

conference date: May 22, 2014 @ 1:45 PM Pacific Time
for quarter ending: May 2, 2014 (Q1, first quarter fiscal 2015)

Forward-looking statements

Overview: Great quarter, smashing through revenue guidance on strong LTE sales.

Basic data (GAAP) :

Revenue was $957.8 million, up 3% sequentially from $931.7 million, and up 30% from $734.4 million in the year-earlier quarter. [Revenue was nearly a record despite it being a seasonally-slower quarter]

Net income of was $99.5 million, down 7% sequentially from $106.6 million, and up 87% from $53.2 million year-earlier.

EPS (earnings per share) were $0.19, down 10% sequentially from $0.21, and up 73% from $0.11 year-earlier.

Guidance:

Fiscal Q2 2015 revenue expected between $940 and $980 million. GAAP Gross margin 48.7% to 50.7%; non-GAAP 49% to 51%. GAAP op ex $355 to $375 million; non-GAAP $320 to $340 million. EPS: GAAP $0.19 to $0.23; non-GAAP $0.26 to $0.30. 537 million diluted share count. Expects $150 million in free-cash flow.

All end market segments are expected to be sequentially relatively flat, although within segments some solutions will grow and some decline.

Conference Highlights:

Solid results were "driven by better than expected demand for our mobile and wireless customers, particularly LTE solutions." Marvell continues to invest in "appropriately" advanced technologies to increase market share.

Non-GAAP numbers: net income $144 million, down 5% sequentially from $151 million, and up 47 % from $98 million year-earlier. EPS was $0.27, down 7% sequentially from $0.29, and up 42% from $0.19 year-earlier. Excludes $30.0 million non-cash stock-based compensation, $7.6 million amortization, and $7 million in other charges.

Non-GAAP gross margin was 48.8%, down sequentially from 50.1% and down from 54.6% year-earlier. GAAP gross margin was 48.4%. Margins were lower than guidance because of the product mix.

The HDD market (storage) market revenue was down 6% sequentially on typical seasonality. Revenue from HDD was up y/y. Working on next-generation technologies. SSD revenue was a record, up double-digits sequentially, on new product introductions. Believes SSD. For Q2 overall storage market flat on typical seasonality.

Mobile and wireless revenue grew 30% sequentially, led by Chinese LTE smartphone ramps by multiple vendors. 33% of overall sales. Half the top selling models in China are based on Marvell solutions. Also expanding into multiple geographies. Completed LTE certification with Verizon. Wireless connectivity up over 50% y/y, including game consoles, with more device launches expect later this year. But expects overall segment to be flat in Q2.

Network processing segment market flat sequentially. 18% of total sales. LTE buildouts in China were strong. Armada family doing well. Expects flat sequentially in Q2. PON business strong

Video connectivity business is growing very quickly, based on the Armada family. Example is Google Chromecast.

Cash and equivalents balance ended at $2.1 billion, sequentially from $2.0 billion. Cash flow from operations was $237 million. Free cash flow was $211 million, or 20% of revenue. Nothing was spent on share repurchases. The dividend required approximately $30 million.

Cost of goods sold was $493.9 million, leaving gross profit of $464.0 million. Operating expenses were $371.0 million, consisting of: $295.4 million research and development; $38.4 million selling and marketing; $30.6 million general and administrative; $6.7 million amortization. Leaving operating income of $93.0 million. Interest income $1.9 million. $4.6 million income tax benefit.

The quarterly dividend per share will remain at $0.06, payable on July 2, 2014. Marvell's ability to pay the dividend depends on Bermuda law, where Marvell is incorporated.

Q&A:

Good LTE ramp in China, any sell-though visibility? So far the uptake of devices has been very solid. China Mobile subscribers has been less than expected so far, but is expected to pick up during the remainder of the year.

3G decline? It is just a shift to LTE, which is going quickly.

Expected LTE shipments in China this year? Realistically 50 million units, but the telecoms are expecting more like 100 million (this is total for all companies).

Operating expense still flat despite higher revenue? We have plenty of resources at this level. Nothing changed in op ex this year.

Investor concern about competition from Mediatek in China LTE, when it begins? It takes time for customers to develop handsets with new silicon. We don't expect new comers to get much traction this year, but they could get some in 2015. We are not sitting still. We already introduced high-end chips with 64-bit processors, and newer but lower-cost solutions. We will serve the different market segments to defend our position better than we did historically when we only had one product.

HDD enterprise ramp, effect on margins? Enterprise HDD has a long design cycle and OEM customers are conservative, as are end customers. Our percent share of this space will increase gradually over the next couple of years. We are still expecting 50% range for gross margins short term. But as consumer products become a larger part of the business the overall margins could go down slightly.

LTE baseband business, geographic mix? In the first half it is clearly mostly China. In the second half we are certified by AT&T and Verizon. Outside of China likely to be mobile computing devices.

Seasonality in mobile and wireless? We like to tamper down the LTE ramp expectations for this year. "I don't want our customers to overbuild" and then have inventory problems later in the year. Still believes closer to 50 million than 100 million. But usually Q2 and Q3 are growth quarters for us, after Q1 falls from Q4. So flat Q2 is off of stronger-than usual Q1.

Returning cash to shareholders? We return more than our competitors. We will be opportunistic in any buy-back activities.

Carnegie Mellon update? The judge filed the order for judgment. We bonded that amount. The appeal will take between 12 and 18 months.

3G pricing is very competitive, putting pressure on margins, but we don't expect that in LTE for several years. Some developing countries are only now switching to 3G.

We have not seen a meaningful increase in enterprise spending on networking, and over 70% of our business is in the enterprise segment.

SSD controller market? Companies are trying to squeeze 2D density, lately at 15nm node, but reliability is an issue for enterprise cloud storage. Our latest generation of controllers is designed to address these issues. We are the only one to have this technology, we are sampling our 5th generation technology, so we are in a good position.

Any 10% customers? Yes, in the storage space.

We don't break out our SSD revenue from overall storage revenue. We are targetting quality and performance segment of the SSD market. The majority of our customers have their own Fabs for the NAND chips. We already have over 50% of the market.

Q1 was back-end loaded. Q2 does not appear to be front-end loaded, so far.

Once LTE is deployed in China, it will become cheaper in the rest of the world than deploying 3G. This will create an opportunity for Marvell in the rest of the world. In 2015 we should cover all parts of the LTE market, from low-end to high end. But we are not targeting the low-end, white-box smartphone market.

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