Marvell: Fiscal 2Q13 Financial Results

(in US$ million)	2Q11	2Q12	6 mo. 11	6 mo. 12
Revenues	897.5	816.1	1,699	1,612
*Growth*		-9%		*-5%*
Net income (loss)	192.4	93.1	339.3	187.6

Marvell Technology Group Ltd. reported financial results for the second quarter of fiscal 2013, ended July 28, 2012.

Revenue for the second quarter of fiscal 2013 was $816 million, a 2% sequential increase from $796 million in the first quarter of fiscal 2013, ended April 28, 2012, and a decrease of 9% from $898 million in the second quarter of fiscal 2012, ended July 30, 2011.

GAAP net income for the second quarter of fiscal 2013 was $93 million, or $0.16 per share (diluted), compared with GAAP net income of $95 million, or $0.16 per share (diluted), for the first quarter of fiscal 2013, and $192 million, or $0.31 per share (diluted), for the second quarter of fiscal 2012.

Non-GAAP net income was $142 million, or $0.24 per share (diluted), for the second quarter of fiscal 2013, compared with non-GAAP net income of $139 million, or $0.23 per share (diluted) for the first quarter of fiscal 2013 and $234 million, or $0.38 per share (diluted) for the second quarter of fiscal 2012.

"Our results in the second quarter were affected primarily by the slowdown in the macro-economic environment that impacted our storage and mobile end markets. However, our SSD, 500 gigabyte per platter HDD and wireless connectivity products grew double digits sequentially and our networking end market continued to outperform on the strength of new products and share gains," said Dr. Sehat Sutardja, Marvell’s chairman and CEO. "Despite the soft near-term demand environment, we are maintaining good profitability and continue to deliver shareholder value through our share repurchase and dividend programs."

Marvell reports net income, basic and diluted net income per share, in accordance with U.S. generally accepted accounting principles (GAAP) and on a non-GAAP basis as outlined below. Reconciliations of GAAP net income to non-GAAP net income for the three months ended July 28, 2012, April 28, 2012 and July 30, 2011 appear in the financial statements below. Non-GAAP net income, where applicable, excludes the effect of stock-based compensation, amortization of acquired intangible assets, acquisition-related costs, restructuring costs, and certain one-time expenses and benefits.

GAAP gross margin for the second quarter of fiscal 2013 was 53.2%, compared to 54.0% for the first quarter of fiscal 2013 and 57.9% for the second quarter of fiscal 2012.

Non-GAAP gross margin for the second quarter of fiscal 2013 was 53.6%, compared to 54.5% for the first quarter of fiscal 2013 and 58.1% for the second quarter of fiscal 2012.

Shares used to compute GAAP net income per diluted share for the second quarter of fiscal 2013 were 570 million shares, compared with 595 million shares in the first quarter of fiscal 2013 and 623 million shares in the second quarter of fiscal 2012. Shares used to compute non-GAAP net income per diluted share for the second quarter of fiscal 2013 were 587 million shares, compared with 606 million shares for the first quarter of fiscal 2013 and 625 million shares for the second quarter of fiscal 2012.

Cash flow from operations for the second quarter of fiscal 2013 was $189 million, compared to the $199 million reported in the first quarter of fiscal 2013 and down from the $263 million in the second quarter of fiscal 2012. Free cash flow for the second quarter of fiscal 2013 was $174 million, compared to the $178 million reported in the first quarter of fiscal 2013 and down from the $235 million in the second quarter of fiscal 2012. Free cash flow as presented above is defined as cash flow from operations, less capital expenditures and purchases of IP licenses.

Under the share repurchase program, Marvell repurchased approximately 20 million shares for a total of $250 million in the second quarter of fiscal 2013. Over the past eight quarters, Marvell has repurchased and retired approximately 127 million shares, or about 19%, of its outstanding shares demonstrating its commitment to returning shareholder value.

Marvell also paid its first quarterly dividend of $0.06 per share on July 11, 2012 to all shareholders of record as of June 21, 2012. Marvell will pay its next quarterly dividend of $0.06 per share on October 4, 2012 to all shareholders of record as of September 13, 2012.

Marvell intends to pay a regular quarterly cash dividend on its common shares subject to, among other things, the best interests of its shareholders, its results of operations, cash balances and future cash requirements, financial condition, statutory requirements of Bermuda law, and other factors that the board of directors may deem relevant.

Comments

Abstracts of the earnings call transcript:

Sehat Sutardja, chairman and CEO:
"(...) in our storage end markets, Q2 revenues increased by 7% sequentially. Storage now represents about 47% of revenues. The recent macro slowdown resulted in lower PC sales in Q2, and our drive customers are now forecasting flat market demand in calendar Q3. If true, this will be the first time in history that HDD demand is flat in Q3. We believe this conservative view in today's environment is healthy for the industry as it reduces the risk of inventory buildup. However, the drive industry may have to deal with the potential for improved demand, for example, as a result of the upcoming Windows 8 launch.
"Beyond the near-term end demand issues, there are a number of positive things happening in our storage business that I want to highlight. First in Q2, we continue to see strong growth for our 500-gigabyte per platter mobile drives, which grew over 30% in Q2 and represented over 1/3 of our unit shipments. As you know, we are the only provider of this 500-gigabyte mobile technology. We increased our shipments of 500-gigabyte per platter products to a major customer for their mobile drives, where we are a new supplier. We are now at about 10% of their core mobile platforms and expect our share of their mobile drives to increase over the next few quarters.
"(…) we are extremely well-positioned in small compact HDDs, targeting the ultrabook market. We saw an opportunity for such small form factor drives as early as 4 years ago and subsequently started promoting 7-millimeter form factor to our customers. Not surprisingly, all of the 7-millimeter drives in the market today use our SoCs. Furthermore, the industry is pushing for even thinner drives with 5-millimeter form factor that are suitable for devices such as tablets. Our long-standing investment in SSDs will be a key factor that will enable these 5-millimeter form factor HDD technology in hybrid formats.
"(…) our SSD business continues to do very well with Q2 revenue growth of about 25% sequentially, primarily from new customer ramps. Our SSD design wins momentum remains strong, and we expect multiple devices including ultrabooks and hybrid devices to come to market this year with our SSD controller technology. In Q3, we expect our SSD business to grow over 25%. For fiscal Q3, we anticipate our overall storage end market to grow low single digits sequentially."

Clyde Hosein, CFO:
"Cash, cash equivalents and short-term investments were $2.1 billion, a decrease of $68 million sequentially.
We currently project third quarter revenues to be in the range of $800 million to $850 million. At a midpoint of this range, this represents a modest 1% growth rate.
"We expect our storage end market to increase low single digits sequentially with double-digit growth for our 500 gigabytes for HDD mobile platforms and SSD controllers. For HDD in particular, we are projecting a couple of points of share gains in an otherwise conservative flat chance."