Marvell Technology Group Ltd. (MRVL)

F3Q2011 Earnings Call Transcript

November 18, 2010 4:45 pm ET

Executives

Jeff Palmer – VP, IR

Sehat Sutardja – Chairman, President and CEO

Clyde Hosein – CFO, Interim COO and Secretary

Analysts

Harlan Sur – JPMorgan

Ji [ph] – Citibank

Sukhi Nagesh – Deutsche Bank

Ambrish Srivastava – BMO Capital Markets

Jim Schneider – Goldman Sachs

Chris Caso – Susquehanna Financial Group

Uche Orji – UBS

John Pitzer – Credit Suisse

Sanjay Devgan – Morgan Stanley

Presentation

Operator

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Good day, ladies and gentlemen, and welcome to the third quarter 2011 Marvell Technology Group Limited earnings conference call. I’ll 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.

I would now like to turn the presentation over to your host for today, Mr. Jeff Palmer, Vice President of Investor Relations. Please proceed, sir.

Jeff Palmer

Thank you, Amanda and good afternoon, everyone. Welcome to Marvell Technology Group’s third quarter of fiscal 2011 earnings call. With me on the call today is Dr. Sehat Sutardja, Marvell’s, Chairman, President and CEO; and Clyde Hosein, Marvell’s CFO. 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 found at our company Web site under the Investor Relations section at www.marvell.com. Additionally, this call is being recorded and will be available for replay from our corporate Web site.

Please be reminded that this call will include forward-looking statements that involve risks, uncertainties that could cause Marvell’s results to differ materially from management’s current expectations. The risks and uncertainties include statements regarding revenue trends within our end markets, our expectations about the sale of new and existing products, the sustainability of our long-term business model, general market trends, and specific statements regarding our financial projections for the fourth quarter of fiscal 2011.

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 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 third quarter of fiscal 2011 earnings press release, which has been furnished to the SEC on Form 8-K and is available on Marvell’s Web site in the Investor Relations section at www.marvell.com.

I’d like to now turn the call over to Sehat.

Sehat Sutardja

Thanks, Jeff and good afternoon, everyone. During our fiscal third quarter, we generated revenue of approximately $959 million, a 7% sequential increase and a 20% increase over the same period a year ago. We delivered non-GAAP gross margin of 59.5% and an operating margin of 32.4%, resulting in non-GAAP earnings per share of $0.45.

Again, we generated significant free cash flow of approximately $338 million, equivalent to a 35% free cash flow margin. We delivered excellent performance during the quarter across most of our end markets. We continued to deliver substantial profitability and cash flow generation, highlighting the long-term leverage of our business model can deliver.

Now, let me provide some color on what transpired during the quarter. In the mobile and wireless end market, sales increased over 20% sequentially and represented about 35% of our total revenue during the quarter. This was above our prior guidance of 15% to 20% growth.

Looking at the sources of the growth, about two-thirds of the sequential increase was due to continued demand for our cellular communication processors. About one quarter of this sequential increase was due to strong seasonal demand for our embedded wireless LAN products. The remainder of the sequential growth was due to continued demand for our ARMADA application processors.

After three consecutive quarters of significant growth, we are anticipating our embedded wireless LAN business, particularly our game console business to experience normal seasonality. As you’re aware, the game console market has the heavy build schedule in calendar Q2 and Q3, ahead of the seasonally strong holiday selling season.

In addition, over the last couple of quarters, we have increased our position in this market, which gives us a dominant share in this space. This has the effect to exacerbate the seasonal impact on our wireless LAN revenue. The remainder of our mobile and wireless business is expected to be essentially flat on a sequential basis. Taken together, we believe our mobile and wireless business will decline approximately 10% at the midpoint of our overall guidance.

To further our leadership, during the third quarter we introduced several important new products in the mobile and wireless market. First, we announced the world’s first tri-core application processor, the ARMADA 628. This is a highly integrated SoC with three SMP ARM v7 CPUs, two high-performance symmetric multi-processing engines capable of up to 1.5 gigahertz and a third CPU capable of 600 megahertz.

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