Marvell Technology Group Ltd. F4Q10 (Qtr End 01/30/10) Earnings Call Transcript

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Marvell Technology Group Ltd. (MRVL)

F4Q10 (Qtr End 01/30/10) Earnings Call

March 4, 2010 4:45 pm ET

Executives

Jeff Palmer – VP, IR

Sehat Sutardja – Chairman, President and CEO

Clyde Hosein – CFO, Interim COO and Secretary

Analysts

Glen Yeung – Citi

Adam Benjamin – Jefferies

James Schneider – Goldman Sachs

Harlan Sur – Morgan Stanley

John Pitzer – Credit Suisse

Uche Orji – UBS

Presentation

Operator

Good day, ladies and gentlemen. Welcome to the Q4 2010 Marvell Technology Group Limited earnings conference call. I will be your coordinator for today. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. As a reminder, this conference is being recorded for replay purposes. (Operator instructions) I would now like to turn the presentation over to our host, Mr. Jeff Palmer, Vice President of Investor Relations. Please proceed, sir.

Jeff Palmer

Thank you, Dana. And good afternoon, everyone. Welcome to the Marvell Technology Group’s fiscal fourth quarter 2010 earnings call. I’m Jeff Palmer; Marvell’s Vice President of Investor Relations, and with me on the call today is Dr. Sehat Sutardja, Marvell’s Chairman, President and CEO; and Clyde Hosein, Marvell’s CFO and Interim COO. All of us will be available during the Q&A portion of the call today.

If you have not obtained a copy of our current press release, it can be found in our company website under the Investor Relations section at www.marvell.com. Additionally, this call is being recorded and will be available for replay from our corporate website.

Please be reminded that this call will include forward-looking statements that involve risks and uncertainties that could cause Marvell’s results to differ materially from management’s current expectations. The risks and uncertainties include our expectations about sales of new and existing products and general market trends. Statements regarding our financial projections for the first fiscal quarter of 2011, our expectations about long-term growth, as well as expectations regarding the current economic environment and impacts to industry demand.

To fully understand the risks and uncertainties that may cause results to differ from our outlook, please refer to Marvell’s latest quarterly report on Form 10-Q and subsequent SEC filings for a detailed description of our business and associated risks. Please be reminded that Marvell undertakes no obligation to revise or update publicly any forward-looking statement.

During our call today, we will make reference to certain non-GAAP financial measures, which exclude stock-based compensation expense as well as charges related to acquisitions, restructuring, gains and other charges that are driven primarily by discrete events that management does not consider to be directly related to Marvell’s core operating performance.

Pursuant to Regulation G, Marvell has provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures in our fourth fiscal quarter and fiscal year-end 2010 earnings press release, which has been furnished to the SEC on Form 8-K and is available on Marvell’s website in the Investor Relations section at www.marvell.com.

Now I would like to turn the call over to Sehat.

Sehat Sutardja

Thanks, Jeff. And good afternoon, everyone. Today we reported fiscal fourth quarter of 2010 revenues of approximately $843 million, reflecting a 5% sequential increase and a 64% increase over the same period a year ago. For fiscal 2010, our revenue was $2.81 billion, down approximately 5% versus fiscal 2009. This is impressive performance given the 30% decline in revenue we experienced during the first half of fiscal 2010.

Even on this lower revenue base, full year non-GAAP EPS increased 30% to $0.92 per share from the $0.76 per share in fiscal 2009. We accomplished this by improved operational efficiency and actively controlling expenses, which led to a 32% improvement in operating income and operating margin of about 30% for the last two quarters.

Full year free cash flow was $756 million, up 26% versus the year-ago period, representing a 27% free cash flow margin. During the fiscal fourth quarter, we achieved several notable financial performance metrics. Our gross margin increased to approximately 60%, over 860 basis points of improvement from a year ago. Additionally, we achieved record operating margin and cash flow metrics during the quarter.

Operating margin on a non-GAAP basis was nearly 32%, while free cash flow was over $250 million or 30% of revenue. These are both record levels for Marvell and a reflection of the hard work and physical discipline of our employees. I’m very proud of our employees for these accomplishments and want to thank them for their support.

During the fourth quarter, the performance across our end markets was in line with our original guidance provided to you in December. The sale of new products during the quarter was approximately $100 million or about 12% of our total revenue. This was about a 30% important on a sequential basis, as demand accelerated for our new products during the quarter.

Of particular note was the increased demand for new 3G cellular communication processors, with revenue more than doubling during the quarter. Additionally, we experienced a significant traction with our networking products. Our new product revenue more than doubled for both our enterprise switches and embedded CPU products.

Looking out into our first quarter, we anticipate revenue from new products to represent approximately 15% of our total revenue. Please note, due to the long design cycles of many of our products, we believe defining new products introduced in the last 12 months is a better measure of new product traction. The previous information and comparisons reflect the new methodology for all periods noted.

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