MRVL

Marvell Technology Group Ltd. (MRVL)

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Marvell Technology Group (MRVL)

Q1 2012 Earnings Call

May 26, 2011 4:45 pm ET

Executives

Sukhi Nagesh -

Sehat Sutardja - Co-Founder, Executive Chairman, Chief Executive Officer, President, Chief Executive Officer of Marvell Semiconductor Inc, President of Marvell Semiconductor Inc and Director of Marvell Semiconductor Inc

Clyde Hosein - Chief Financial Officer, Principal Accounting Officer and Secretary

Analysts

Craig Berger - FBR Capital Markets & Co.

Uche Orji - UBS Investment Bank

Glen Yeung - Citigroup Inc

Sanjay Devgan - Morgan Stanley

James Schneider - Goldman Sachs Group Inc.

Harlan Sur - JP Morgan Chase & Co

Srini Pajjuri - Credit Agricole Securities (USA) Inc.

Craig Ellis - Caris & Company

Vivek Arya - BofA Merrill Lynch

Presentation

Operator

Good day, ladies and gentlemen. Welcome to the First Quarter 2012 Marvell Technology Group Ltd. Earnings Conference Call. My name is Jeff, and I'll be your Operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to introduce our host for today, Mr. Sukhi Nagesh, Vice President of Investor Relations. Please proceed, Mr. Nagesh.

Sukhi Nagesh

Thank you, Jeff, and good afternoon, everyone. Welcome to Marvell Technology Group's fiscal first quarter earnings call. I am Sukhi Nagesh, Marvell's Vice President of Investor Relations. And with me on the call today are Dr. Sehat Sutardja, Marvell's CEO; and Clyde Hosein, Marvell's CFO. We will all 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 at our company website under the Investor Relations section at marvell.com. Additionally, this call is being recorded and will be available for replay from Marvell's 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, general market trends, including statements about TD and the SSD market, statements regarding our financial predictions for the second quarter for fiscal 2012 and our expectations about long-term growth.

To fully understand the risks and uncertainties that may cause results to differ from our outlook, please refer to Marvell's latest annual report on Form 10-K 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 statements.

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 discreet 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 Marvell's first quarter 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.

With that, I would now like to turn the call over to Sehat.

Sehat Sutardja

Thanks, Sukhi, and welcome aboard. And good afternoon, everyone. Today, we reported first quarter fiscal 2012 revenues of approximately $802 million, reflecting an 11% sequential decrease from the prior quarter. We delivered non-GAAP gross margin of 58.5%, operating margin of 24% and non-GAAP earnings per share of $0.29. We generated free cash flow of approximately $150 million equivalent to a 20% free cash flow margin.

We continued to deliver strong profitability and cash flow generation even in this low point of our revenue cycle, highlighting the long-term leverage of our business model. Also, consistent with our plan to return value to our shareholders, we used approximately $800 million to repurchase about 50 million shares in the quarter.

Now let me summarize our results across our end markets. First, in our mobile and wireless end market, Q1 revenues declined over 30% sequentially and represented approximately 25% of our overall revenues. The sequential decline was higher than previously anticipated and reflects pronounced seasonality in the consumer end markets and continued softness at one of our larger customers.

Given the recent market concern surrounding our Mobile and Wireless business, I would like to take a moment to address this up front. First, I would like to stress that the mobile end market is a key area for Marvell, and we continue to invest new product development and to strengthen our infrastructure to support new customers.

As an example, we are currently supporting over 20 handset designs at new customers. In addition to our current 3G and TD offerings, our investment in advanced technologies, such as LTE, are starting to pay benefits. We are already sampling our LTE solutions at some of our key customers and believe we are well positioned to benefit when the market ramps. Although quarter-to-quarter fluctuations are hard to avoid, we believe our business at our leading customers will be sustained, and we will continue to be a significant player in this space.

Second, I want to share with you the current status of the ramp in TD products. We are winning about 80% of the TD smartphone designs on the Android and OMS platforms. Our single-chip solutions address the entire spectrum of low- to high-end TD phones, and we are firmly entrenched in the high-volume sweet spot. We believe our solutions are compelling for this market and should translate into solid growth for our TD business this year.

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