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Cavium Networks Inc. (CAVM)
Q4 2008 Earnings Call
January 28, 2009 5:00 pm ET
Angel Atondo – Marketing Communications Manager
Syed Ali – President and Chief Executive Officer
Art Chadwick –Vice President and Chief Financial Officer
Dan Morris – Oppenheimer & Company
Quinn Bolton – Needham & Company
Sandy Harrison – Signal Hill
Kevin Cassidy – Thomas Weisel Partners
Hans Mosesmann – Raymond James
Sanjay Devgan – Morgan Stanley
[Ali Farth] – [Ferex Capital]
Previous Statements by CAVM
» Cavium Networks, Inc Q3 2009 Earnings Call Transcript
» Cavium Networks, Inc. Q3 2008 Earnings Call Transcript
» Cavium Networks, Inc. Q2 2008 Earnings Call Transcript
Welcome to Cavium Networks fourth quarter 2008 financial results conference call. Leading the call today are Mr. Syed Ali, President and CEO of the company, and Art Chadwick, Vice President and Chief Financial Officer.
Before we begin, I would like to remind you that various remarks that we make on this call, including those about our financial results, including revenues, growth margins, operating expenses, design wins, product plans, our competitive situation, market trends and anticipated growth and profitability all constitute forward-looking statements for the purpose of the Safe Harbor Provisions under the Private Securities Litigation Reform Act.
These forward-looking statements and all other statements that may be made on this call that are not historical facts are subject to a number of risks and uncertainties that may cause actual results to differ materially. We refer you to our most recent Form 10-K and Form 10-Q filed with the SEC in particular to the section entitled Risk Factor, and to other reports that we may file from time to time with the SEC for additional information on factors that could cause actual results to differ materially from our current expectations. These forward-looking statements speak only as of the date hereof and we disclaim any obligation to update these forward-looking statements.
In addition, Cavium reports gross margin and net income and basic and diluted net income per share in accordance with the GAAP and additionally on a non-GAAP basis. Management believes the non-GAAP information is useful because it can enhance the understanding of the company's ongoing economic performance and Cavium, therefore, uses non-GAAP reporting internally to evaluate and manage the Company's operations.
Cavium has chosen to provide this information to investors to enable them to perform comparisons of operating results in a manner similar to how the company analyzes its operating results. The full reconciliation of the GAAP to non-GAAP financial data can be found in our earnings release issued earlier today and we ask that you review it in conjunction with this call.
I will now turn this call over to Syed Ali.
In brief, Cavium’s third quarter revenue was $22.2 million, which represents a 9.6% sequential decrease and a 37% year-over-year growth. Non-GAAP gross margins came in at 55%. The reduced top line and gross margin resulted in non-GAAP operating margins declining to 2%. Non-GAAP net income was $700,000 or $0.02 per share and our GAAP loss was $4.4 million or $0.11 per share.
Art will provide more details on the Q4 financial results and Q1 ’09 guidance shortly. I will now move on to give you more details on our Q4 revenues, along with a general update on the demand environment after which I’ll give you an update on our acquisition of W&W Communications. I will then discuss design wins and new customer and partner relationships.
Last quarter the enterprise and datacenter segment was the largest segment at 59% of product revenues and declined 16% quarter-over-quarter. The remaining segments including consumer broadband, access service provider and software services segment combined to achieve 41% of sales for the quarter and were approximately flat quarter-over-quarter.
Q4 was one of the most challenging quarters in our history. The weak macroeconomic environment coupled with aggressive inventory corrections in the channel set the stage for the challenging environment. We had relatively robust bookings in September and October followed by a sharp falloff in November and December, which led to our preannouncement in early December.
The enterprise and datacenter segment contributed to pretty much all of our sequential quarter-over-quarter decline in Q4. Weakness was especially pronounced in the security segment and in midrange and higher end enterprise boxes.
Our largest customer, Cisco Systems, was relatively strong actually growing about 1% quarter-over-quarter in absolute dollars. The weakness in certain enterprise segments at Cisco was offset by some newer product ramps that helped maintain revenues with Cisco. Other than Cisco, the decline was fairly broad based across our enterprise customer base. This is the first decline we have had in the enterprise and datacenter business since we became a public company in 2007.
In the remaining segments, the broadband segment was the largest and actually grew abut 4% quarter-over-quarter in dollars, in spite of our largest customer in the segment, Sumitomo, declining about 25% quarter-over-quarter. The Sumitomo decline was more than offset by the Actiontec Verizon FiOS business starting to ramp. We also saw some softness in the software and services category.
Overall, the sequential quarter-over-quarter decline was largely driven by our older legacy and security products, while our flagship multi-core OCTEON line saw only marginal weakness, even in this very weak environment. Lower sales and a higher gross margin enterprise datacenter and software segments, coupled with the increase in the broadband business, led to gross margins declining more significantly than we would have liked.