Cavium Management Discusses Q2 2012 Results - Earnings Call Transcript

Cavium (CAVM)

Q2 2012 Earnings Call

August 01, 2012 5:00 pm ET

Executives

Angel Atondo - Marketing Manager

Syed B. Ali - Founder, Chairman, Chief Executive Officer and President

Arthur D. Chadwick - Chief Financial Officer, Principal Accounting Officer, Vice President of Finance & Administration and Secretary

Analysts

Sundeep Bajikar - Jefferies & Company, Inc., Research Division

Sanjay Devgan - Morgan Stanley, Research Division

Harlan Sur - JP Morgan Chase & Co, Research Division

Anil K. Doradla - William Blair & Company L.L.C., Research Division

Blayne Curtis - Barclays Capital, Research Division

Steven Eliscu - UBS Investment Bank, Research Division

Quinn Bolton - Needham & Company, LLC, Research Division

Hans C. Mosesmann - Raymond James & Associates, Inc., Research Division

Krishna Shankar - Roth Capital Partners, LLC, Research Division

Sujeeva De Silva - ThinkEquity LLC, Research Division

Raj Seth - Cowen and Company, LLC, Research Division

Arnab K. Chanda - Avian Securities, LLC, Research Division

Brian T. Modoff - Deutsche Bank AG, Research Division

Ruben Roy - Mizuho Securities USA Inc., Research Division

Alex Gauna - JMP Securities LLC, Research Division

Presentation

Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Cavium, Inc. Second Quarter 2012 Earnings Conference Call. [Operator Instructions] This conference is being recorded today, August 1, 2012.

It is now my pleasure to introduce our host for today, Ms. Angel Atondo. Please go ahead.

Angel Atondo

Thank you. Good afternoon, everyone, and welcome to Cavium's Second 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 our 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 and net income and basic and diluted net income per share in accordance with a 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. Syed?

Syed B. Ali

Thanks, Angel, and thanks to everyone for joining us today. In brief, Cavium's first quarter revenue was $55.3 million, up 5% from Q1. Non-GAAP gross margins came in at 60.6%. Non-GAAP net income was $3.5 million or $0.07 per share. Our GAAP net loss for the quarter was $11.8 million or $0.24 per share.

In Q2, we saw very positive trends emerge in our core enterprise and service provider markets. We saw strong growth in the service provider market, driven by ramps of designs to production especially in the wireless infrastructure market. New design ramps covered the entire spectrum from base stations, to radio network controllers, to the evolved packet core EPC across both 3G and 4G markets.

The enterprise market also delivered good growth across a broad range of markets. These trends drove double-digit growth in the enterprise and service provider markets in Q2, despite some reminiscence of inventory correction at a couple of our customers.

Sales into broadband and consumable is flat, and sales of software and services was down due to the realignment of resources in the service sector that I talked about in the last conference call.

Overall, booking trends were up significantly in Q2 when compared to Q1 and remained strong across the entire quarter, driven by product ramps at existing customers and several newer customers starting to go to production.

In Q2, our top customer was once again Cisco Systems, which came in at 29% of sales and was up 11% sequentially. There were no other 10% customers. Art will provide more details on the Q2 financial results and Q3 2012 guidance shortly.

I would -- like usual, I would now like to provide an update on actual Q2 design wins. Our overall design win momentum and pipeline remained very strong and similar to what we have seen over the recent quarters. Design wins in Q2 were once again spread across product families, target markets and low- to high-performance points.

The enterprise and service provider market -- segment delivered the highest design wins based on expected annual revenues. In the enterprise and service provider market, we closed multiple new design wins at a number of Tier 1 customers including Alcatel-Lucent, Cisco, IBM, Huawei, Juniper, Nokia Siemens and Samsung.

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