邁威爾科技 (MRVL) 2004 Q1 法說會逐字稿

Welcome to the Marvell Technology Group 1st quarter fiscal year 2004 conference call.

During the presentation, all participants will be in a listen-only mode.

After the presentation, you will be invited to participate in the question-and-answer session.

At that time, we ask all participants to please limit themselves to one question, to allow time for others.

This conference call is being recorded.

On Thursday, May 22nd, 2003.

I will now turn the call over to the Chairman and Chief Executive Officer of Marvell, Dr. Sehat Sutardja.

Please go ahead, Doctor.

Thank you, Paul.

Welcome everyone to our 1st quarter fiscal year 2004 conference call.

Weili Dai, Executive Vice President of the communications business group and George Hervey, Vice President of finance and Chief Financial Officer are joining me on this call.

By now, I'm sure that everyone is totally confused on the direction of the general economy conditions.

Not helping much -- matters much, we stated in our previous quarter call that we were upbeat about this coming year, yet our tone was more conservative on the financial projections for the year.

The reason for this was because, on one hand, even though we have plenty of good news to talk about, such as having many industry leading products and solutions that our customers need and having the industry leaders as our customers, at the same time there was plenty of concerning news that may offset the good news, including things such as global effect of war and more recently the concern of SARS and potential deflation.

When I have talked to our customers in the past, even they were confused about the exon me.

However, more recently, many of our customers are projecting better growth ahead, even though their competitors may not be doing as well.

While this may not be the good news that everyone is talking about, to us, this is very good news indeed.

Many of our customers have been gaining market share over the past several years.

And, as a result, even in the current prolonged industry downturn, we have been able to grow by growing market share away from our competitors.

We are now even more encouraged that the balance of the year will be a good one for us as during the 1st quarter of this year we have seen additional improvements in our large customer base.

Before I review the progress of our business further, I would like George to provide our safe harbor statement and a review of our Q1 financials.

Thank you, Sehat.

Good afternoon, ladies and gentlemen.

I would like to remind all participants that the following dialogue will contain predictions, estimates and other forward-looking statements covering subjects such as data storage and communications market trends, competition, customers, suppliers, products and demand, revenue growth, gross margin expectations, operating expenses, other income, accounts receivable and inventory.

Such statements may be preceded by the words like "expects" "anticipate," "believes," "should," "will," "may" or words with similar import.

The following factors among others could cause results to differ materially from those described in the forward-looking statements, and they include the inability to further identify, develop and achieve suck test for new products, services and technologies, increases competition and its effect on pricing, spending, third party relationships and revenues, as well as the inability to establish and maintain relationships with commerce, advertising, marketing and technology providers.

We direct your attention to our annual report on form 10K, quarterly reports on form 10Q, current reports on forms 8 K and other securities and exchange commission filings, all of which discuss other important risk factors that may affect our business, results of operations and financial condition.

Please be reminded that we undertake no obligation to revise or update publicly any forward-looking statements for any reason.

Now, moving to the Q1 financials, Marvell reports net income loss -- slash loss and basic and diluted net income/loss per share in accordance with GAAP, and additionally on a non-GAAP basis referred to as pro forma.

Marvell management believes that non-GAAP information is useful because it can enhance the understanding of the company's ongoing economic performance and Marvell therefore uses pro forma reporting internally to evaluate and manage the company's operations.

Marvell 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.

Today we reported the net revenue for the 1st quarter of fiscal 2004 was a record 168.3 million, a increase of 70% over the 98.8 million reported for the comparable quarter in fiscal 2003 and a sequential increase of 12% from the 4th quarter of fiscal 2003.

Pro forma net income, which excludes the effect of acquisition related expenses, amortization of stock-based compensation and charges related to facilities compensation was 24.5 million or 19 cents per share diluted for the 1st quarter of -- 1st quarter of fiscal 2000 had compared with pro forma net income of 10.5 million or $0.08 per share diluted for the 1st quarter of fiscal 2003 shares used in commuting pro forma shares per quarter up were 129.6 million, compared to 132.5 million shares for the 1st quarter of fiscal 2003.

This quarter we achieved a important milestone.

Net income on the generally accepted accounting principles GAAP was 4.4 million or $0.03 per share diluted representing our 1st quarter of GAAP profitability since our acquisition of Galileo Technology in the 1st quarter of fiscal 2001.

We have provided on our website in the investors section at www.marvell.com a reconciliation of GAAP net income or loss to pro forma net income for the quarter reported today, plus the prior eight quarters.

Now I would like to turn the call back to Sehat for comments on our business outlook.

Thank you, George.

One question that I keep getting all the time is: How is it possible that Marvell continues to grow so much faster than the rest of the -- than the rest of the industry.

It is one thing to be able to do this when Marvell was a small company a few years back.

Sooner or later the law of large numbers will start to affect our growth rate.

I agree, however, this is all relative.

Many of the market segments that we address are very large in dollar size.

So that even though our revenues are considerable when compared to other businesses, we have only barely scratched the surface.

Remember, Marvell is only a eight--year-old company.

One thing that you should realize is that as a young company we were initially forced to anybody at smaller business opportunities.

There was [INAUDIBLE] that were so much more challenging to address.

As we are maturing as a company, and have entered the more mainstream markets, we have consistently raced the technology bar enabling our customers to improve their products, as well as presenting a formidable, competitive challenge for other suppliers in those markets.

As we have proven ourselves over time to be the leading player in the market segments that we have addressed.

We are now seeing significant opportunities that were previously not available to us.

In fact, some very large potential customers are seeking to work with us, as they have seen the technology and products we have delivered to their competitors are truly state of the art, and we actually have a lower risk path compared to the existing supplier base.

On top of that, many of our customers and potential new customers have realized that despite the fact that the end products that are built may be considered commodities due to large volume nature of the market, the underlying technology that we provide is beyond state of art.

We are already seeing that fewer and fewer companies can address this market.

In both the storage and communication markets, we are now providing more complete solutions from single chip devices to overall chipset solutions with device drivers and application software support packages.

Our relationships with our customers have grown from just a supplier and just tomorrow her model to a more long-term partnership model.

This is a very exciting time for us, indeed.

Many of our customers are actively working with us to address new market segments, or market segments that they have not previously addressed so that they can grow their businesses beyond their traditional market segments.

As we provide them with the necessary tools, and solutions, to address these new markets, we are optimistic about our future growth and also growth rate over the next several years.

Many of the technologies that we have developed during the past eight years of our existence provide key foundations on which we will build our future.

Our storage solutions incorporate the industry leading highest speed rechannel devices, together with the industry highest performance and better processor and many other must-have features including the capabilities.

Our gigabit ethernet devices incorporated our patented virtual cable faster feature, allowing network providers to perform remote diagnostics at the customer's side lowering the cost of supporting the end use of the communication infrastructure.

Our wireless LAN 80211 solutions are designed to specifically handle severe multi-task solution found in home environments, assuring consistent quality of service.

This technology is absolutely a must for distributing video and audio content throughout the home, using wireless LAN technology.

Our wireless LAN products have also been designed specifically to consume less power so that they can be more useful for a light battery operation.

In summary, we do not just built products to meet industry specifications, but more importantly we built products to work in real-world conditions.

With so many business opportunities emerging over the last year, we have expanded our centers throughout the world.

We now have centers in California, Colorado, Israel, Singapore, Germany and Japan, to better serve our customers.

Seen during the downturn, we have aggressively expanded our team.

With a combined workforce of about -- of about 1400 people, we probably have one of the largest engineering teams in our business.

About happen of the -- half of the team is working on new products.

They will contribute to our future growth to ensure the continuing rapid growth of the company.

Now I would like to give you some specific updated on our products.

At the recent NetWorld trade show we demonstrated our 80211 G solutions side-by-side with competing solutions, providing our customers the opportunity to compare the solutions against each other in a open, public area.

To their surprise, all the existing 80211 G solutions that we benchmark as a -- at the network show have significant deficiencies in the coexistence operation with the 11B solutions.

In all cases, existing 11G solutions performed no better than the 11B solutions.

We have also heard that many earlier 11G solutions actually prevent the existing 11 B solutions from operating when the 11 G solutions are deployed, giving a false impression that this -- these 11 G solutions are better than 11 B solutions.

In the short time that we have sampled our 11 G solutions, we have demonstrated high data rate 11 G solutions operating in coexistence with existing 11 B solutions.

We are very excited on the performance of our 11 G solutions.

Again, this proves that we are not just building need to products, but products performing better in real world conditions.

In the gigabit networking space, we continue to gain new design wins for our Prestera silicon switching solutions across the tier one customer base.

At the NetWorld show we also demonstrated a two-chip, 48-port gigabit switch silicon solution as well as introduces our latest family of silicon to address not only the metro market that we addressed originally with the Prestera solution but also the lower cost value line of gigabit ethernet switching that is expected to replace the current value line fast Internet switching.

We continue to be bullish on the gigabit market as we continue to lead the market with more and more complete solutions.

As to our progress in addressing the consumer space, we are happy to report that we are well on our way in the development of several initial new products leveraging our existing technologies to address potentially very large market opportunities.

Our belief is that in the next few years, we will see continuing faster growth rates in the consumer entertainment businesses, and we would like to make sure that we are well-prepared to address this market.

Now I would like to turn the call back to George for additional comments regarding our Q1 financials, and forward guidance.

Thank you, Sehat.

First, I would like to make some additional comments on our Q1 results.

Our Q1 revenue of 168.3 million was a new quarterly record for the company in the 70% increase from Q1 last year.

Additionally, the 12% increase in revenue from Q4 to Q1 compares very favorably to our guidance of a seven to nine% sequential quarterly increase in revenue.

The Q1 sequential increase of 12% represents a six consecutive quarter that our sequential revenue growth has been greater than 10%.

During Q1, both our storage and communications businesses performed well, resulting in increasing revenue for both businesses.

Entering the 1st quarter, and reflected in our Q1 revenue guidance, was the anticipation that we would experience the historical pattern of the first calendar quarter of the year experiencing varying levels of season at when compared to the fourth calendar quarter.

Seasonality is most evident in the PC market and we expected moderate levels of season at in Q1, progressing through the quarter it became apparent that there would be little to no seasonality during Q1 and the business momentum improved as we exited the quarter.

In Q1 the main growth drivers for our revenue increase remained the continued increase in adoption of gigabit ethernet by the PC client market, increases in production ramps for the current SOC solutions in desktop storage and increased shipments for the newest desktop storage activity.

We saw a increase in gigabit ethernet shipment for the networking infrastructure and the shipments of 80211 products.

At the recent NetWorld show we displayed customer products from net gear and linux incorporating our 80211 technology.

For the quarter, storage products contributed low to mid 50% of total revenue, with communication products representing the balance.

We are very pleased with our gross margin percentage for Q1, gross Marin of 54.8% was over 100 basis points higher than our guidance at 53.5, plus or minus 25 basis point.

There was several factors that contributed positively to the gross margin percentage.

First, as we've mentioned during the last several calls, our manufacturing efficiency and benefits from our yield improvement programs continue to produce very cost effective products.

Second, our customers value the technology that we provide to them, for their products, and realize that in order to provide our high level of technology, and continued product development, we must deliver them cost effective products at reasonable prices.

Finally, product mix which is the largest determiner of gross margin percentage was quite favorable in Q1.

Our pro forma operating percentage continues to decline as a percentage of revenue, and the Q1 pro forma operating expense percentage of 39% was consistent with our guidance.

For the 7th consecutive quarter, we increased our pro forma operating income percent.

Our continued double-digit sequential revenue growth strong gross margins percentage contribution and decreasing pro forma operating expenses as a percentage of revenue resulted in 150 basis point increase in Q1 pro forma operating income from 14.2% to 15.7%.

The strength of our balance sheet continued to improve in Q1.

We increased our cash and short-term invests by approximately 34 million dollars to 299 million.

DSOs for Q1 decreased to 48 days from 51 days in Q4.

Our DSOs continue to remain in the range of guidance of high 40s to low 50 days, DSOs are likely to remain at the high end of the range during the periods of rapid revenue growth.

During Q1 we increased our inventory by approximately 7 million dollars to support the current and projected growth of our business.

Our days of inventory increased from 51 days to 55 days, we will continue to monitor our production levels going forward with the goal of putting us in the most favorable position to respond to increases in demand for our products.

Now, turning to the future.

We have just completed our 1st quarter of fiscal year 2004.

We would like to take this opportunity to update our guidance regarding the financial outlook for the company for fiscal '04.

On our Q4 earnings call we discussed that entering fiscal '04 we believe our strong product portfolio has increased the number of major revenue opportunities and we are looking forward to another year of significant growth.

In our storage business, we expect our new desktop opportunity to reach volume production as we progress through the year.

And serial ATA to ramp more significantly in the second half.

In our communications business, our strong design win position was the Alaska FI and Prestera switching products should benefit us as gigabit ethernet is more widely deployed in the network infrastructure.

Based on customer feed back we believe that the Yukon gigabit ethernet mother board for the wireless market and the 80211 B and G products will provide us with significant revenue opportunities during the next year.

During Q1, our visibility into how these major revenue opportunities would contribute to our fiscal '04 revenue improved.

That, coupled with better visibility for our designs that are currently in production, provides us the opportunity to achieve more revenue growth than we anticipated entering fiscal '04.

Based on all of these factors, we now expect our revenue for fiscal '04 to range between 760 million to 790 million.

Which at the midpoint is approximately a 53% growth from fiscal '03.

For the balance of fiscal '04 we believe that the margin percentage will remain above the long term model of 52% but below the Q1 level of 54.8% and R&D and SG&A as a percentage of revenues should begin to decline.

Now, moving more specifically to Q2 '04, we remain cautious regarding the overall recovery and potential recovery in IT spending, as I mentioned in in my discussion of Q1, we exited Q1 with significant momentum, generated by our strong market position, broad product portfolio and increasing number of design wins for those products.

This has resulted in our visibility for Q2 improving when compared to our visibility entering Q1.

The targeted company revenue for Q2 to increase 10 to 12% from Q1.

The product mix of shipment in Q1 was very favorable helping to generate the 54.8% gross margin.

While we believe that normal ASP declines will be offset by continued reduction in our manufacturing costs, the anticipated product mix of our shipments in Q2 will be more consistent with what we have experienced over the last several quarters.

This should result in Q2 gross margin of 54%, plus or minus 25 basis point.

With our focus set on providing the technologies, products, and building a couple structures to support long-determine growth, R&D and SG&A in absolute dollars will increase in Q2 but decline approximately 100 basis points as a percentage of revenue from Q1.

Interest and other income should remain consistent with the Q1 level.

Now, I would like to turn the call back to Sehat.

Thank you, George.

That completes our commentary.

Paul, would you please poll for questions?

Ladies and gentlemen, as a reminder, please press star and then the number 1.

Your first question is from Cody Acree from Legg Mason.

As always, congratulations on a good quarter.

Thank you.

Maybe you can talk a little bit about where you are seeing the most strength in the outlook.

Is it evenly split between the two divisions?

Do you see one or the other giving you the most impetus for this revision upward?

Well, you know, as we've been discussing, we've been to a number of investor conferences so far this year.

And one of the themes that we've, you know, I think consistently mentioned to investors is the number of revenue opportunities from -- for Marvell greatly increased this year.

And as I -- as I kind of outlined.

So these are all starting to have -- have impact.

And, you know, so there are -- not everyone is exactly the same, but they are now all contributing.

And in the back half of the year, we would expect more contribution, as I mentioned, from the network infrastructure and serial ATA; so, you know, while we're excited about all of them, you know, they all have positive contribution, and as -- also, I mentioned now with the better visibility also into our existing business, across a number of our products, it gives us the -- the added, you know, encouragement to raise the number.

I'm sorry, was there anything else?

No, that is it.

And can you talk a little bit about the de -- the decisions going on in the mother board market with this Springdale launch, how those decisions, as far as the gigabit ethernet usage are coming to bare, and where do you think this shakes out as far as market share through the rest of the year?

Do you want to answer that?

Sure.

Yeah.

And as you guys should note, the partnership with Intel has been extremely successful, and obviously the Springdale [INAUDIBLE] again, it confirms the success of the joint partnership.

And we're seeing this moving forward sometime in the year, I think at the -- the PC express is going to be the next wave.

As far as the conversion from fast to gig, it obviously is happening.

And we believe -- continue to believe by the end of this year, the majority of the PC for the corporate side of PC going to convert to gigabit.

Actually, I want to add a little bit on the -- on the Springdale.

If you notice, Springdale incorporated a serial ATA; so this is a huge milestone for serial ATA.

The -- we anticipate that by the middle of next year, a majority of the -- the storage will move to serial ATA, and the Springdale introduction is -- is a huge milestone for that.

Maybe specific -- specifically back though to the mother board decisions going on, a lot of those yesterday with the launch now coming out, we're seeing you having a -- a solid share within those -- those releases.

How are -- I guess, what is driving the decisions to use yours versus some of the CSA, say the Intel based versus some of the competition?

Yeah.

Cody, I do not think that we want to go into a lot of discussion about that.

You know, we remain very committed with our partner, and I think, you know, that would probably -- that is an area we do not want to go down.

We are very pleased, you know, with the adoption of our technology, and our partners' technology across the platforms that were announced yesterday.

I think we'll leave it at that.

And lastly, any updates on IBM and Hitachi?

Not that we're specifically going to discuss here.

We're -- as we've mentioned there is a -- you know, a lot of discussions going on.

You know, we're -- we've been a key supplier to Hitachi for a number of years.

We feel good about the opportunities.

You can assume that when we -- when we say that we are -- we are -- we are building long-term partnership with our customers, we really meant it, okay?

IBMs, Hitachis are no different.

We are building.

We are building, continue to build stronger and stronger and -- a relationship with our customers.

Guys, congrats and thank you again.

Again, ladies and gentlemen, we ask that you please limit yourselves to one question to allow time for others.

Your next question is from Michael Masdea, with CSFB.

Great.

Let me add a congratulations, guys, a great quarter.

You made an interesting comment about your 1st quarter, how you expected seasonality which ended up not being as seasonal as you thought.

When you look at your guidance for Q1, does that incorporate the season quality, or are the orders so strong that they are not looking for a seasonality to Q2.

Based on the orders, the answer would be no.

We do not see seasonality.

There could be some there because of the strength of all the, you know, designs wins that we have, we may be growing right through that.

But I think as Sehat mentioned, you know, the commentary from customers is getting more positive.

And I think -- so we're -- that is giving us a lot of, you know, more positive feelings about Q2.

Great.

A quick follow up, if I may.

Cisco has made aggressive moves into the gigabit ethernet side driving down prices, do you see that impact in your business, any impact on ASPs and margins for you guys?

Is that starting to happen?

In terms of Cisco launching gigabit, because we are the key supporter for that since two years ago, from technology side.

And, as you know, as volume goes up, the cost efficiencies are very important, and we're ready for that too.

We'll let our gross margin stand for answering the part about, you know, our ability to be competitive, even in a competitive market.

Great.

Thanks.

Your next question is from Jeremy Bunting with Thomas Weisel partners.

Hi, good afternoon.

This is Neville Shaw.

George, I'm not sure if you mentioned your 10% customer this is quarter.

No, I did not do that, Neville.

It has been the trend, you know, over the last couple of quarters with our revenue growing as rapidly as it is, it is becoming a little higher bar to become a 10% customer.

So, again, we only have two 10% customer in Q1, and they would be Intel and Samsung.

George, thank you.

I wanted to ask, you've been increasing your R&D expenses expanding into mass markets.

Can you tell us where you think that R&D as a percentage of revenue may stabilize and when you expect that to happen?

Can we expect 18% operating margin by the end of the fiscal year?

We have adopted or we're in compliance now with Reg G and as a result -- as we discuss looking forward, we're no longer going to be in a position to speak about our -- our pro forma operating income or our pro forma EPS; we'll do that on a historical basis only when we provide the reconciliation in our earnings release.

I think if you look at the progress though that we have made over the last seven quarters, going from 2% now almost to 16, it clearly giving you -- gives you an indication of the path that we're on.

Okay.

And if I could ask one last question, regarding press yeah you guys mentioned Nortel in your last conference call, I believe.

And when can we expect Nortel and some of the other design wins that we've heard about for Prestera, when do you expect volume productions of that product and your -- you know, real significant revenues?

As far as the customer information, we like to keep the way we have been doing until our customers announce -- make announcement.

We'll acknowledge that.

But as far as the penetration for Prestera, it has been extremely successful.

We do expect high revenue in the back half of the year for those.

Okay.

Thank you.

Your next question is from Arnab Chanda with Lehman Brothers.

Thank you.

And just not to basically repeat the congratulations but move on to some of the other interesting questions.

First of all, could you talk a little bit about Springdale?

You were talking about, you know, some of the design wins with your partner, versus without.

I think yesterday there was some products announced.

If you could talk a little bit around what time frame should we expect to see, you know, sort of talk about design wins or what is going on with the Yukon product, especially in the PC and the white box industry.

I think yesterday actually defined where the design wins are.

You know, we are on the products that [INAUDIBLE] announced yesterday through our partnership with 3Com, they are utilizing Yukon on at least three of the designs that I saw.

So I think that you will see further potential launches from other people.

And, you know, we're moving, you know, quite aggressively into the white box market with our partner, 3Com, to, you know, increase our market share.

You know, which, by the way, we m zero before entering that earlier this year.

So that is all -- all new business for us.

Thank you.

And one last question.

I wanted to speak about what -- if you'd talk a little bit about what kind of opportunities exist in the drive market for you beyond -- this year you talked about consumer electronics, if you could flesh that out, after the western digital transition is over, what should we be looking for from that segment?

Thank you.

Sure.

Arnab, the market for storage is actually a very important -- I would say that storage is a very important technology, not just for PCs, laptops, or PCs or servers, specifically we talk a lot about consumers.

When the -- the oldest part -- the consumer products, they will incorporate storage will be DVRs, DVD combinations with dvrs, set top box, satellites, GPS systems for automotive.

The audio players like iPods, you know, as the price of these devices, you know, goes down, I mean, the volumes will go up, naturally.

So it is a -- we are very excited that by the end of this decade probably the -- the -- the consumer side of the storage will be significantly larger in market size compared to -- compared to existing PC market, by -- by huge margins.

A significant amount, yes.

Thank you very much.

Your next question is from Jim Liang with Pacific Growth Equities.

Thank you.

Could you talk a little bit about the average ATA report on gig client and your expectations by year-end.

I think we should -- I've -- I'm taking the position that it is better for us not to talk about ASP any belonger because it just gives too much information for our competitors to react.

But I will say that we are competitive.

We will -- we'll-we will -- will be the most competitive supplies in the markets.

At the same time, we'll make sure that we get a fair value for our technology, which is a lot superior compared to some of our competitors.

Great.

I just think it would be -- I think, also, reasonable to assume that over time, as volume increases, you know, it is a semiconductor so.

Yes, sure.

We expect to see normal pricing type of curve.

Right.

Just a second question.

Can you talk a little on the point 13 micron plans?

On -- on progress.

We are even studying and designing the 19 nano meter, so we will -- we will do -- we use whatever technology that makes accepts for any given time.

So depending on which product lines or at which time frame, also depends on the volumes, okay?

We will use different process geometry.

But we are -- there is a -- as a company, we are quite aggressive, considered one of the most aggressive in the business in terms of -- of doing R&Ds on most advanced process geometry.

On that front, as far as your foundry partner, any thoughts on potentially qualifying a second foundry partner for some of the more mature technology nodes.

We do have, but we're just not talking about it.

So, again, I would like to -- would like to come from a position that -- that if there is no benefits for us to talk about it, we would rather keep it, now -- you know, keep it simple.

Competitive advantages.

There is -- it is a competitive advantage to us.

Right.

Great quarter, guys.

Thank you.

Thank you.

Ladies and gentlemen, please limit yourself to one question to allow time for others.

Your next question is from Ambris Srivistava with GKM.

Hi, thanks.

In wireless land it is interesting to see you showing up in your competitor's largest customers, what is the thought about units that you can ship, and a second quick follow up, what are you seeing in the inventory level in the channel on the stripe side.

Thanks?

Okay.

What you've seen actually just the initial -- the initial success of our wireless products.

We are -- as we have said for a long time, when we entered the wire less lan, our -- our goal is actually -- our mark market is the -- the eventually target market is the consumer space.

And you have seen also from some people, some publications that the wireless market is split into enterprise markets and -- and consumers.

And consumers are the most challenging of all to -- to address because of the reliability robustness requirement, especially when these products are used to distribute videos and audios to a -- to a lesser extend, video is more challenging, obviously.

So I will -- our goal is to be the biggest -- to get as huge a -- I mean, a significant market share in the consumer space.

That is where the -- where the success will be measured, who has the best product in the -- into this market.

But it is too early for us to talk about what the -- the goal is I just can say that we do not -- we do not -- we do not go into markets that we do -- we do not plan to seriously compete.

On the -- on the storage side, I think the -- there has within a lot of discussion, I think, on various levels of inventory.

You know, again, I think you -- it is really more of -- asking our customers about that than directly us.

But I would -- the best we we can measure how they're feeling about that issue is based on the demand.

That they are placing on us, and that demand at this point is -- is pretty robust.

So we're not getting any indications that there are -- you know, they are adjusting for any inventory issues out there right now.

Okay.

Thanks, guys.

Your next question is from Jim Jugjohann with CIBC World Markets.

Hi, guys.

Just a [INAUDIBLE] if I can get any info out of you, George, but it sounded like western was not a 10% customer.

Can you kind of talk about that ramp there, if you could give us color or system on a chip versus the conversion and then Intel just if sales were up or down on the quarter.

Any way I can get that.

No, not really.

But, you know, we do not -- we do not discuss, you know, that level of detail.

I think what we would say on -- on western digital is, you know, we're excited about the opportunity we have there.

We're -- we're working with them very closely, and we're very pleased with the progress that's been made so far, and are looking forward to, you know, additional progress being made as we -- as we move through the rest of the year.

So it is a very significant opportunity that we're obviously very much focused on.

On the Intel, what I would say is, you know, go back to some of my comments on the seasonality and therefore the lack of seasonality actually happening.

And the fact that the penetration of gigabit ethernet on the client market, you know, was only somewhere between 30 to 40% exiting last year.

You know, in the same -- as Weili said, we expect it to be the majority on the desktop before the end of this year, and that -- that is actually happening, and did happen even in Q -- and saw further penetration even in Q1.

So on your Intel revenue guidance for the year, is that assuming a -- down revenues trailing off, flat or anything that you can give.

No, we're not going to go there.

I thought so.

Thanks guys.

Bye-bye.

Yeah.

Your next question is from Carl Matia with Wachovia Securities.

Thank you.

Most of my questions have been answered.

But Sehat, in your opening remark, I have a question and a clarification, in your opening remark, you said that half of your engineers are working on new products, is that correct?

Yes, approximately.

Okay.

And are these new products, could you give us any color?

Are they in the current markets you serve, or would you be entering any new markets?

And, if so, what kind?

Combination.

I'm sorry, go ahead.

And -- and, if so, what kind of incremental opportunity are you looking at?

All right.

In combinations of existing markets, we are -- -- we are expanding.

Some of them, obviously, expanding our -- our partnership with our customer base.

And quite a bit of that is directing new -- new segments of the market.

It -- again, some of this information is too [INAUDIBLE] to talk about.

Okay.

I understand.

But I can tell you that the -- a lot of things that we do usually do not generate revenues for two years or three years, and sometimes even longer.

So -- yet -- yet we realize that, regardless -- regardless how expensive it is to develop these technologies, we realize that this is the only way for -- for -- for us to ensure the continued growth of the company for the long term.

So we -- we are very, very excited that -- that we have our long-term plan, you know, be able to basically be able to -- to support our -- our long term investment goal.

Okay.

Thank you.

Your next question is from David Wu with Wedbush Morgan securities.

Yes, I just want to get some -- a couple of questions, and a clarification, please.

George, when you spoke about the rich product mix, I assume to get the kind of margins that you got the PC market in the -- in the notebooks were stronger than the desktop. -- for the -- for your drivers -- for customers, in Q1.

Am I correct on that assumption?

And the other one I have, really, was the -- Dr. Sutardja, we have the -- the Intel showing of -- and the analysts' meeting a 90 millimeter gig E chip.

And they said they got first silicon on those.

Is the gigabit ethernet client the place where you use the most advanced technology to get the smaller dye size and lowest cost and lower power.

Okay.

Let me answer the --

second part first?

Second part first.

The -- yeah.

I -- I'm not -- you know, I'm not too familiar with what exactly the process that -- they used.

CMOS.

I mean, geometries, dye sizes and so on.

But I can -- I can -- I can be -- I'm pretty sure that our technology -- our solutions are very, very competitive in terms of -- we're having -- we'll be seeing smaller dye sizes.

The -- we are -- and our devices are scalable.

We can use any geometries.

We have proven over the years that our devices can shrink when the time is right.

We -- we -- can shrink when the time is right.

We use smaller geometry whenever the yield is again, whenever the process matures.

But having said that, it is not about process geometries.

It is about -- it is about reliability, about performance, about longer range, about features, okay.

We have patented VCT technology where our customers can do diagnostics on the problems.

So this is -- the time to talk about process probably was about two years ago when we were nobody.

But at this point we really -- what customers talking to us is really -- really who has the -- who has the proven products in the market?

On the first question, I think, what I would point you to, David, is a couple of commentaries from our customers, actually.

You are going down the right path.

But I think that if you look at some of the strength in the -- within the storage business, in the enterprise area, you know, and -- and obviously with our dominant market share in that segment, you know, any strength there is very positive for us.

And then second, on -- Intel was making some relatively positive comments relative to Centrino's adoption and therefore improving a mix of mobile PCs versus desktops, and of course we would agree with that.

We have seen that, and that is of course also beneficial to our margins.

Thank you very much.

Your next question is from Quinn Bolton with Oppenheimer.

Hi, guys.

Congratulations on a good quarter.

A question and a clarification.

One, on the parts that were discussed earlier in the call that you won[INAUDIBLE], those look like branded 3Com [INAUDIBLE], I want to qualify, are these internally designed by Marvell, or is there -- is this a 3Com Mac?

If it is internally designed, internally designed by Marvell, why the 3Com brandings?

And then a couple of follow-ups.

I think if you remember back to Las Vegas year, when we announced, you know -- to last year, when we announced a new partnership with 3Com as a, you know, a very prominent supplier of client-based products, we said that, you know, many of their products -- it is 100% our IP, but 3Com certainly does offer other things beyond just the hardware in support of the customers, and so we're very, you know, pleased to be engaged with them and moves, you know, into the white box market, you know, together with them.

So -- but the hardware itself is 100% Marvell.

Is there any revenue sharing?

I'm sure you will not be able to give us the details if there is, but is there revenue sharing on the actual gig E controller as part of that arrangement, or does 3Com get?

You know what is the benefit to 3Com.

You are right.

We will not go into the details of that.

But I think it is a -- both companies are pleased with the business relationship.

Okay.

The second question is just -- you've talked about the opportunity, the ramp at western DIJ, some of their comment, they've said that they've seen some pretty good demand from the legacy 40 gig per flatter, and I'm wondering if you've seen any change in your forecasted ramp at western digital given the customer demand for some of the legacy platforms.

Again we're not going to go into detail about specific customers again.

You know, I think that you need to go and ask, you know WD, and I think they've commented on that.

I think we'll leave it at that.

And just finally Sehat mentioned sort of a increase target focus on the consumer platforms over the -- sort of over the next few years, just sort of wondering to the extent that more and more business comes from consumer, how do you keep the margins above 50, 52%?

Okay.

Consumers, the -- the margin is a -- margin is a functions of value.

We do believe that certain areas of consumer product can command higher margins, maybe possibly higher margins than the PC market.

The PC market is being advertised.

Everybody has the same solutions, or perceived to have the same solutions.

Even though it is -- it may not be true in certain areas, but may be perceived as having similar solutions.

In consumers, I should say that it depends on the wishes of consumers.

If we can leverage advanced technology that we have developed over the years in our products and position them to be significantly better than other -- to be a product that is not -- that did not exist today, that does not exist today, we do believe that it is going to be -- for a company that can deliver those products early, and be first to market, margins should be -- should be reasonable.

Right.

And I think that is consistent with our long-term business model which is, you know, we have set at 52% to contemplate that, you know, all these various areas that we are going into, some will be obvious as they are today, some are higher than the corporate average and some are lower than the corporate average.

The model is a model of all of the blend businesses that were -- or product areas that I should say are involved.

I agree with Sehat, I would not assume that markets are going down just because of the consumer.

And Marvell has been known for not only providing the best technology we have the most efficient from the cost component also, the yield, the dye size.

So, you know, we are very competitive.

And also the consumer in terms of market segment, this is just only an additional market we are address, on top of the market segments we are serving today.

So it is just addition to what we have today.

So just to sum up from where we stand today, no reason to change the long-term gross margin target of 50%.

Absolutely not.

Not for now.

Thank you.

Your next question is from Aalok Shah from Pacific Crest.

Hi, guys.

You mentioned George a couple of times that you had better visibility.

Could you give us a feel of that?

What does that mean?

Is it better lead teams?

Are you fully booked for the quarter or are -- and then I will follow up with a question.

Sure.

Our storage business is pretty much consistent with where it has been before, which is basically we are fully booked as we enter a quarter, because of the nature of the business, the customization of the products and the need -- by our customers to ensure a source of supply, they give us excellent visibility going forward.

The com business has not been -- it does not follow that pattern quite as closely, and we've commented over the last several quarters that we would need, you know, anywhere from 30 to 50%, you know, quote turns, which is not really turns, it is really fill in in a given quarter.

I would say right now that that number is significantly less than 30%.

At this point.

Okay.

And what has it historically been coming into the quarter.

It has been at least 40 to 50%.

And then my second question is really quickly, on the 80211 G side, we saw the announcement earlier in the week.

Do you have a customer now, or is this a product announcement that you think will lead to a could you say tomorrow her sometime in this quarter.

We are -- we are working with a number of customers.

But, again, we cannot disclose those names yet.

Okay.

But we have not seen a official product from any of those customers yet.

No.

And probably still won't for another couple of quarter, we're anticipating G revenue in the second half of this year.

Okay.

Great.

Thank you.

Your next question is from Charlie Glavin with Think Equity.

Let me just begin, guys, wow, on both the quarter and the guidance and at the risk George having known you for a while of adding more fuel to the flame, when I look at the -- the ramp on both -- or the layout of Kenwood as well as Springdale along with the prices for Intel's mother board, it would seem, if anything, that if Intel takes its prices down from sort of the 8 a to 105 range down closer to the 45 of the eight 45 and the way that I look at six of the Kenner woods did not have gigabit and three or four of the microstars did not have the megabit, if the transition is going this well and you have this kind of visibility, with further price cuts, that we're hearing out of Asia already planned in September, does your guidance actually include the possibility of, say, those mother boards coming out with more gig bet or is that standard?

If you look at six of the 16 not being there, granted, you can overextrapolate, but that would assume maybe 50 to 60% penetration, or maybe Sehat, another way of looking at it is based on what you are seeing now with gigabit, what are you looking for the penetration as we head into Labour Day and maybe the end of the year.

I think the way that we would like to probably address that, Charlie, is to say that the best data that we can come up with is that the penetration level exiting last year into the client was somewhere between 30 to 40%.

We believe.

That by the time we get to Q4 of this year, and of course this now would be the OEM market, plus the -- plus the white box market, as a -- as a total providers to the client, Q4 most likely would be the peak -- would be the peak of dollar revenue.

At that point.

So that that means that there is a lot of additional volume to be, you know, brought forth as we go through the rest of the year.

And -- and George or Sehat when you look at Microstar as an example, they had only one Intel-specific board, one real tech and the rest were, you know, outside of those three that were none gigabit.

Is it safe to assume that those are solutions that are being used with Marvell and I guess maybe the other question is, given the extent of the board, are we seeing actually people opting -- not necessarily putting the integrated LAN on mother board but looking for more of a support on the NIC side and thus opening up more for the 3Com?

The -- the first Internet is quickly getting out of favor on the business PCs and white boxes.

When we -- some of the -- some of the -- some of the first ethernet designs that are still there is simply for negotiations in pricings to obtain lower cost gigabits.

So -- so we do expect that this will go away pretty -- pretty soon.

By the end of this year.

Because -- because people will -- our customers will not -- the end users will not settle with -- with inferior fast Internet solutions, if the -- if they can guy a gigabit -- the ones with the gigabits elsewhere.

So -- I mean, I'm not -- I'm -- I mean, I cannot predict, okay, how many% will stick with fast Internet but I just do not see why do you want it?

Why do people want similar things?

Why would anyone want to have a -- USB 1 instead of USB2?

Right, right, agreed Sehat.

You opened up one if I could for a follow-up.

You mentioned that as far as from the commercial standpoint, George, fill's not mistaken, you announced some laptop designs wins that I do not believe that you've formally announced who they are.

I believe that they started to ramp six to eight weeks ago, are you in a position going in, since laptops have ramped ahead of desktops on the hard disk drive as far as who your bigger customer is, and could you elaborate on some of those opportunities in.

Talking about the drives now Charlie.

Yes, on the drive side.

Yes, well we have three traditional -- as always, the guys that we are participating with,[INAUDIBLE], you know, which we have a very long relationship with, and a very strong relationship, hitachi is a big player which will be -- again, provide them 100% of their -- their opportunity, and of course we are now actively engaged with Fujitsu as well, who is a significant player in the mobile -- on the mobile sector.

And do you see significant upside from there?

Well, I think all of those -- yeah, I think that the -- you know, we're -- we're just very, very positive about the market conditions right now.

They seem to be getting -- seem to be getting better.

Okay.

Also the prices of laptops are going down due to the prices are getting more reasonable, the flat panels are getting more reasonable prices.

A lot of -- a lot of people's buying laptops for their second machines.

Right.

And the -- and the SOC's are helping on the thermals as well.

Thanks again, guys.

Great quarter.

Your next question is from Mike Lipacis with Prudential Securities.

Yes, thank you.

A question on serial ATA, Sehat I did not quite catch all the comments that you made there.

Did you say that you expected a unit -- unit crossover between serial ATA and parallel?

In 2004?

And does that -- does that assume that -- is -- is that --s to that assume that 100 gigabit drive surpasses 80 gigabit drives at that time?

Pay long with that?

I'm also interested in understanding when do you expect material production revenues for the serial ATA products and to what extent do you envision the serial ATA product being sold as a stand alone product as opposed to being integrated to the system on chip.

Thank you.

Sure.

Serial ATA is beyond -- a lot of people talk about serial ATA, just like a different -- it is -- serial -- treated serial ATA like another interface.

Serial ATA is beyond parallel ATA.

The performance -- the data rates that it can support is actually -- is a must as we go to the next generation storage applications.

So by next year, storage devices, especially the desktops because of the business PCs, if they do not have serial ATAs, they will will have lower performance than those with the parallel ATA.

That is on the technology side.

Now, on the business side, on the market side, you see the -- the Springdale's supporting serial ATA [INAUDIBLE] on the mother board, so that creates a -- -- it creates basically a demand, instant demand for -- for serial ATA.

So that allows the transitions from parallel ATA to serial ATA to happen much smoother, because of this duel support for parallel ATA and serial ATA.

But I will -- I will say that future generations of chipsets, I mean, will -- it does not make sense to support as many of parallel ATA supports in the future generations of the chip sets.

So most of those things will go to serial ATA.

And with more drives coming with serial ATA natural -- I mean [INAUDIBLE], the transition could happen within a year.

And -- and when we think about the -- building our models for this -- this part of your -- of your business, should we think about this in terms of you I want grating this into the SOC, and then that functioning down the normal price erosion, or should we think about this as something that is sold as a separate component that you guys get, you know, X -- you know, a extra revenue per unit from.

Okay.

That one?

Yeah.

Well, I think you remember, Mike, there are really two markets here, as Sehat has been describing, the PC market.

Interest I think you should assume that in the target drive, yes, it will go into a soc, and we would hope that would be another factor that would allow us to achieve a decent ASP on that product as it gets integrated into the bigger product.

But remember we're on the host side within the system electronics now with our -- for example, being our eight-port device there.

And therefore those will, you know, will stay as -- as individual, discreet solutions moving forward for the RAID market.

Okay.

Great.

That is helpful.

Thank you very much.

Okay.

Thank you.

Ladies and gentlemen, we've reached the allotted time for our Q and A session, would I like now to turn the call over to Dr. Sutardja for comments or closing remarks.

Thank you, Paul.

This completes our Q1 fiscal 2004 conference call.

I would like to thank you for joining us today and look forward to updating you next quarter.

Thank you, ladies and gentlemen for your participation.

You may now disconnect at any time.