This summary is based on the third quarter fiscal 2009 earnings call conducted by Marvell Technology Group Ltd. (MRVL) on December 2, 2008.
Management:
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President and Chief Executive Officer: Dr. Sehat Sutardja
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Chief Financial Officer and Interim Chief Operating Officer: Clyde R. Hosein
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Senior Director, Investor Relations: Jeff Palmer
Key Investors Issues
- Revenues rose 4% to $791.0 million, from $758.2 million in the prior year.
- Net income was $70.9 million, or 11 cents per share, flat from 2007.
Year to Date Highlights:
- Revenues rose 19% to $2.4 billion from $2.1 billion in 2007.
- The firm realized a profit of $252 million or 35 cents a share, from a loss of $116 million or 20 cents a share in fiscal 2008.
Third Quarter Highlights
The firm reported revenues of $791.0 million, reflecting a 4% year-on-year growth from $758.2 million in the prior year though a 6% sequential decline, due primarily to the industry-wide economic downturn.
- The firm experienced weak demand across the entire product portfolio, with about half of the short fall of original projections due to the PC end market with another 20% due to embedded wireless and another 20% due to handsets and mobility.
- Seasonality was front-end loaded as the firm experienced all the push outs and cancellations late in the quarter to a far greater degree than originally anticipated.
- Sales of embedded wireless products were down sequentially but grew on a year-over-year basis by 17%, reflecting the increased usage of wireless connectivity.
- Overall sales of the Ethernet products grew 5% in aggregate on a year-over-year basis but declined sequentially.
The sale of enterprise products, switches, system controllers, and processors, were up over 13% on year-over-year basis while overall sales of communication processors were below the original outlook, due to product transitions.
- However, this was partially offset by demand for newer 3G communications processor products which experienced initial end customer acceptance and is expected to grow in subsequent quarters.
- Gross margin was 52.3%, an increase of 400 basis point from the same period a year ago, essentially flat with the second quarter and in line with prior projected range of 52% to 53%.
- Overall operating expenses were $266.0 million, which was slightly better than the prior projected range of $275.0 million to $285.0 million.
- R&D expenses were $204.0 million, down $13.0 million sequentially due to continued tight expense controls including control headcount management, improved control of the outside services cost, and lower NREs associated product tape out expenses.
Net interest expense and other income was an $11.5 million benefit, an improvement of $18 million due to lower interest payments on standard debt and currency benefit in foreign tax reserves that are settled in local currencies.
- Net income was $70.9 million, or 11 cents per share, down 1% from $71.4 million or 11 cents a share in the prior year on weak revenues.
- Cash equivalents and short-term investments was just over $1.0 billion, up approximately $156 million sequential.
- The firm generated $259 million in cash from operations and spent about $13 million in capex, resulting in $246 million in free cash flow due to improved working capital management, including accounts receivable.
- Accounts receivable were $398.0 million, down about $73.0 million sequentially, primarily due to improved collections of customer payments and lower revenues.
- Accounts payable was $224.0 million, down $13.0 million sequentially due to the improvement in time and payments made to suppliers and lower purchase in volumes.
Operational Highlights:
- The firm is observing an increased level of hesitation by customers to make any long-term order commitments as the depth and the durations of the current economic downturn is still unknown at this time.
- While a portion of the turmoil seen in the semi-conductor supply chain is re-opening and in motion, it also believes a certain amount could be due to overreaction.
- Marvel sees inventories relatively lean on a historic basis, and believes when consumption and order demand realign there should be a fairly robust improvement throughout the supply chain.
- An immediate focus is to actively tighten the expense profile and look for opportunities to squeeze any inefficiencies from operations.
Product Announcements:
- The firm announced a series of new products in the Prestera Internet switching family, which is targeted toward next generation data centers and cloud computing applications, especially those for interserver and interstorage system links.
- The CX family of devices leads the industry by supporting up to 48 ports of 10 gigabit Internet on a single chip, as well as devices which support multiple of 40-gigabit Ethernet ports.
- These products address the fastest growing segment of the 10-gigabit Ethernet switch market, a market expected to grow to hundreds of millions of dollars over the next few years.
Marvel began shipments of the enterprise class system-on-a-chip solutions to the Fujitsu several months ahead of schedule.
- Within the cellular group, the firm experienced strong demand for the third generation communication processor.
- The strong sequential increase in demand was due to the successful launch and robust customer demand for the new RAM Bolt smart phone.
- Management indicated that Marvell has all the building blocks to address market evolutions, including high-performance, low-power Linux compliant embedded CPUs, integrated WiFi, Bluetooth, FM, GPS devices, or even 3G cellular access technology.
- The firm believes the potential to develop a converged mobile product, which would sell between US$100.00 to US$200.00 is only less than 12 months away.
- For the solid state drive vendors the key to addressing this market of high performance, as high well as high reliability devices using MLC Flash, which could rapidly give the user experience of hard disc drive while delivering a reasonable cost delta increase.
