CAVM

Cavium, Inc. (CAVM)

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Cavium Networks (CAVM)

Q3 2012 Earnings Call

October 29, 2012 05:00 PM ET

Executives

Lilly Ly - IR

Syed Ali - President & CEO

Art Chadwick - VP & CFO

Analysts

Sundeep Bajikar - Jefferies

Blayne Curtis - Barclays

Anil Doradla - William Blair

Harlan Sur - JPMorgan

Krishna Shankar - Roth Capital

Gary Mobley - Benchmark

Kevin Cassidy - Stifel Nicolaus

Brian Modoff - Deutsche Bank

Steven Eliscu - UBS

Quinn Bolton - Needham & Company

Daniel Amir - Lazard

Presentation

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Cavium, Incorporated Third Quarter 2012 Earnings Conference Call. During today’s presentation, all parties will be in a listen only mode. Following the presentation, the conference will be opened for question. (Operator Instructions). This conference is being recorded today, Monday, October, 29, 2012.

I would now like to turn the conference over to Ms. Lilly Ly. Please go ahead.

Lilly Ly

Thank you. Good afternoon, everyone, and welcome to Cavium's Third Quarter 2012 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 financial results, including revenues, gross margins, operating expenses, design wins, product plans, our competitive situation, market trends and our anticipated growth and profitability, all constitute forward-looking statements for the purposes 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 Factors, 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, net income, basic and diluted net income per share in accordance with 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 on-going 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 comparison of operating results in a manner similar to how the company analyses 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 you to review it in conjunction with this call.

I will now like to turn the call over to Syed Ali. Syed?

Syed Ali

Thanks Lilly and thanks to everyone for joining us today despite the terrible weather on the east coast and to all of you on the east coast, stay safe and drive. In brief, Cavium’s third quarter revenue was $61.1 million, up 10% sequentially from Q2. The non-GAAP gross margins came in at 63.2%. Non-GAAP net income was 7.8 million or $0.15 per share. Our GAAP net loss for the quarter was 7.3 million or $0.15 per share.

Q3 was an excellent quarter on all metrics, including strong top line growth, increasing gross margins and accelerating operating margins. The strong sequential growth in Q3 was driven by strength across our core enterprise, datacenter and service provider segments.

Growth was broad based across a wider range of end applications and end customers. On our previous conference calls, we have talked about our strong design win traction and our success in building a wide and diversified design win footprint over the past few years. As these diverse customers and diverse end markets start going to production, this helps us build a more stable revenue base and in addition, helps drive a positive tailwind to overall top line growth.

In Q3, our core enterprise datacentre and service provider markets experienced strong double digit growth. In the service provider market, growth was in large part driven by continued ramps in the 3G, 4G wireless infrastructure markets.

The enterprise market also delivered double digit sequential growth across a broad range of applications in the enterprise and data centre. Sales of our core products into the datacentre markets was especially strong in Q3.

Total sales into the combined other two segments were flat with sales into broadband and consumer down and sales of software and services up. In Q3, our top customer who was once again Cisco Systems which came in at 24% of sales and was down 9% sequentially due to expected build seasonality in Cisco’s fiscal first quarter. There were no other 10% customers.

Art will provide more details on the Q3 financial results and Q4 2012 guidance shortly. Now, I would like to give a status update on our new products and information on major initiatives. First, an update on our Neuron Search Processor product line. We are pleased to report that we have shipped the game changing, new Neuron Search Processor family to networking OEM customers. The new ground-breaking neuron family has met or exceeded our design targets for performance, latency, power and cost. This family is targeted at a range of high-performance L2 to L4 network search applications. It supports both IPV4 and IPV6 rules and delivers 100 million to over 1 billion searches per second with guaranteed low latency. With up to 4x the capacity per chip enabling the replacement of four existing state of the art 40 megabit TCAM the Neuron Search Processors consume up to quarter of the power while slashing the cost making them ideal for a wide range of enterprise, datacentre, software upon networking and wide and wireless provider applications.

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