邁威爾科技 (MRVL) 2005 Q3 法說會逐字稿

Good afternoon, my name is Brianna and I will be your conference facilitator.

At this time I would like to welcome everyone to the Marvell Technology Group third quarter fiscal year '05 financial results conference call. [OPERATOR INSTRUCTIONS]

Dr. Sutardja, you may begin your conference.

Thank you, Brianna.

Welcome, everyone, to our third quarter fiscal year 2005 conference call.

Weili Dai, Executive Vice President of the Communications Business Group, and George Hervey, Vice President of the Finance and Chief Financial Officer, are joining me on this call.

I am very pleased to announce another quarter of record financial results for Marvell.

Q3 revenues increased 47% from the prior year, to $318 million.

During the quarter, we also continued to expand our operating margins and strengthen our balance sheet, while at the same time continuing to aggressively invest in research and development of many new and exciting products and technologies.

Our 7% sequential revenue growth -- 7% sequential growth in our quarterly revenue was our 28th consecutive quarter of sequential revenue increase.

Over the last several years, we have demonstrated our ability to consistently deliver solid quarterly revenue growth in a wide range of economy and end market conditions.

In Q3, we also reported our 13th consecutive quarter where our pro forma operating margins have expanded over the previous quarter.

During that 4 year period, our pro forma operating margins have steadily grown from 2.3% to the 22.7% we reported this quarter.

Additionally, given the solid expansions of our operating margins, we also are generating very strong cash flows with our Q3 cash and investments, increasing to over $575 million in the quarter.

We, of course, are very proud of our strong financial track record, which is a reflection of the strength of our technology.

The strong partnerships we have built with our customers and suppliers alike, and the dedication and hard work of our employees.

We take great pride in the execution of our strategy of building Marvell from the ground up, based upon leveraging our core technologies aggressively across an increasing number of large market opportunities.

This strategy keeps us focused, given the large investment in time and effort that is required to develop new products for new markets from within the Company.

By following this approach, we believe we will continue to strengthen -- we will continue to strengthen our competitive positioning with the most advanced products that are designed by us from day one, to meet the exact specifications that our customers and the market requires.

Currently, in our serve to markets we continue build upon our momentum in driving the adoption of our technologies into new high volume consumer applications with our wireless LAN technology and storage electronics for consumer hard disc drives.

We are also continuing to strengthen our position in serving the enterprise markets with the ongoing adoption of [indiscernible - audio difficulties] ethernet as a replacement of fast ethernet and market-share gains in the traditional hard disc drive market.

Also, we continue to build upon our strong design success and momentum with our linear ESP power management solutions and new SOCs develop around high performance embedded microprocessors.

I will elaborate more about these exciting opportunities in our business progress, but first I will have George give our Safe Harbor Statement and provide more insight into our Q3 financial results.

Thank you, Sehat.

Good afternoon, ladies and gentlemen.

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

Such statements will be proceeded by words like expects, anticipates, believes, should, will, may, or words with similar import.

These statements include those relating to the pace of our business for the fiscal year 2005, and the impact of the continued adoption of our solutions on our revenue growth.

The following factors, among others, could cause actual results to differ materially from those described in the forward-looking statements.

They include the inability to further identify, develop and achieve success for new products, services, and technologies, increased 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 10-K, recent quarterly reports on Form 10-Q, recent 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 Q3 financials.

Marvell reports net income and basic and diluted net income per share in accordance with GAAP and additionally on a non-GAAP basis referred to as pro forma.

Marvel's management believes the 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 also chooses 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 third quarter of fiscal 2005 was a record $317.6 million, an increase of 47% over the $215.3 million reported for the comparable quarter in fiscal 2004.

And a sequential increase of 7% from the second quarter of fiscal 2005.

Pro forma net income, which excludes the effect of the amortization and write-off of acquired intangible assets and other, amortization of stock-based compensation and charges related to facilities consolidation, was $66.6 million, or $0.22 per share diluted for the third quarter of fiscal 2005.

Compared with pro forma net income of $35.1 million, or $0.12 per share diluted for the third quarter of fiscal 2004.

Shares used in computing pro forma earnings per share diluted for the third quarter of fiscal 2005 increased to 301million, as compared to 284.8 million shares for the third quarter of fiscal 2004.

Net income on the generally accepted acting principles GAAP for the third quarter fiscal 2005 was $43.6 million, or $0.14 per share diluted, compared with a net income under GAAP of $12 million, or $0.04 per share diluted for the third quarter of 2004.

We have provided on our website in the investor 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 8 quarters.

Now next I'd like to make some additional comments on our Q3 results.

Our Q3 revenue of $318 million was another quarterly record for the Company, and the 7% increase in revenue from Q2 to Q3 was consistent with our guidance of a 7% sequential increase in quarterly revenue.

The increase in Q3 revenue represents the 28th consecutive quarter of revenue increase, or 7 years of consistent growth.

Continuing with the strong growth posted in the first half of fiscal '05, we experienced growth despite an overall very competitive pricing environment, and high customer inventories in the networking market.

Given that challenging business environment, we were pleased with our 7% sequential revenue growth and the breadth of products and end-markets contributing to that growth.

I'll provide some highlights.

We continue to gain market share in the storage market, with increasing adoption of our re-channels and SOC's for the enterprise business PC market.

And increasing shipments of an expanding number of our products for consumer small form factor drives.

Also, we saw strong performance from our wireless 802.11 chip sets.

Our position in the enterprise wireless market continues to strengthen, and we are pleased to commence shipments to our first major consumer platform, Sony Portable PlayStation.

For Q3, our enterprise markets represented approximately 80% of revenue with consumer the balance, we had two greater than 10% customers in Q3, Western Digital and Samsung.

Q3 gross margin of 52.7%, 20 basis points above our guidance, continued the solid gross margin percentage experienced during the first half of fiscal '05.

Even with the competitive nature of our end markets, our continued focus on improving our manufacturing efficiency, resulting in cost reductions has kept our gross margin percentage above our long term model of 51 to 52%.

During Q3, we continued to invest in the development of new products, technologies, and advanced process geometries to keep us in a leadership position in our targeted markets.

While this was reflected in the overall increase in our operating expenses, we continued to experience the operating leverage from the increasing revenue contribution from products developed over the last several years.

In Q3 we again experienced significant operating leverage.

With our pro forma operating expenses as a percentage of revenue, declining to 29.9% which represents a 90 basis point decline from Q2 and 75 basis points favorable to our Q3 guidance.

For the 13th consecutive quarter, we increased our pro forma operating income percentage.

Beginning with fiscal '05, we established a new long-term model for operating income percentage of 21 to 23%, which we expected to reach in 4 to 6 quarters.

Again, given the strength of our revenue growth, our increasing gross margin percentage and lower operating expenses as a percentage of revenue, we increased our operating income percentage by 90 basis points, to 22.7% which is very close to the high end of our long-term model.

Shares used in computing pro forma net income per share for the third increased to $301 million, compared with $285 million for the third quarter of fiscal 2004.

The increase in shares was primarily driven by the use of a higher average stock price for Marvell shares in the treasury stock method calculation.

Our balance sheet continues to remain very strong.

During Q3, we generated approximately $95 million in cash, and exited Q3 with cash and short-term investments of $577 million.

DSOs for Q3 were up 5 days to 54 days.

As we have mentioned in the past, Q3 is a seasonally stronger quarter with increasing demand occurring in September and October.

Additionally, the initial shipments for our new customer opportunities-- I'm sorry our new consumer opportunities--began in the latter part of the quarter.

DSOs are likely to remain at the high end of our range of high 40s to low 50 days during these periods of rapid growth.

Moving to inventory.

During our Q 2 earnings report, we reported a significant decline in our inventory balance, as well as days of inventory.

We commented that our 62 days of inventory as of Q2 was below our target range of 65 to 70 days, and we would 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.

Given our business growth objectives, we adjusted our production levels to bring us more in line with our targeted days of inventory.

For Q3 our days of inventory were 65 days, the bottom of our target range.

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

Thanks, George.

We continue to be strongly focused on our strategy of driving the adoption of our analog mix signal DSP and now microprocessor technologies into a number of very large market opportunities, in both the consumer and enterprise markets.

By executing on this strategy, we are positioning the Company in front of a number of high-volume opportunities in a variety of different end markets.

As a result, we are able to further diversify our revenue streams and expand our world class customer base.

As we have been talking about for a while, a clear example of this revenue diversification is the adoption of our wireless LAN technology into a variety of different consumer end markets.

In Q3, we began initial volume shipments of our first major consumer wireless LAN program, with shipments for the new Sony PlayStation portable handheld game machines.

We are very excited about this tremendous new handheld game opportunity and its utilizations of the 802.11 wireless technologies.

We also believe that wireless LAN will begin to become very prevalent across the entire gaming market.

This is currently presenting us with a number of exciting high-volume opportunities, given all the strength and features that our wireless LAN technology can add to the gaming experience.

We also are continuing to make great progress with adoption of our very small low power wireless LAN solutions into the cell phone market.

Field trials with the cell phone utilizing our 802.11 technology continue to progress very nicely, with a number of different cell phone manufacturers and service providers.

In addition to these phones that are approaching the production stage early next year, we also continue to have great success in building upon our initial market penetration by continuing to add additional design wins with other Tier 1 cell phone manufacturers across the globe.

The adoption of wireless LAN into cell phone is yet another tremendous opportunity, and we are excited about the pace at which the cell phone manufacturers and service providers are working to incorporate this technology.

Another large consumer market that is quickly moving to adopt the 802.11 technologies is the digital imaging market, where winning designs with a number of leading manufacturers of both digital cameras and printers for our wireless LAN solution.

We expect initial volume shipments of these exciting designs to begin early next year.

Our 802.11 solutions are extremely well-positioned for these platforms, as our unique architecture and innovative features allow our customers to adopt Y5 into many new imaging applications.

Our ease of use, coupled with our extremely low power and integration, are leading to a very strong design traction with a variety of consumer handheld devices, PDAs, and hard disc drive based MP3 players.

Given the breadth of these applications, we believe 2005 will prove to be a very exciting year as 802.11 technology begins to be very commonplace technology in the consumer electronic market.

Another very commonplace trend in the consumer electronics market is the strong rate of growth of very sophisticated high performance and feature-rich consumer devices.

With the advancement of technology, many exciting consumer devices are integrating very advanced features, such as voice over IP, broadband connectivity, high capacity storage, MP3, and video capabilities.

The [indiscernible - highly accented language] such cell phone digital cameras, game machines, and printers to name a few are becoming highly sophisticated systems packed with many different advanced features.

Even with the integration of these advanced features, OEM's continue to be under great pressure to lower cost, system power, and development expenses.

A key to cost effectively achieving a solution to these challenges is to combine all of these features into very high performance embedded microprocessors, rather than the use of multiple stand-alone CPUs.

This is creating a very large opportunity for our new high performance embedded microprocessors for such consumer devices.

When combined with our world class technology filled building blocks, we're able to offer a variety of very compelling SOCs, which can cost effectively integrate these advanced features.

With our very advanced and unique architecture, we're able to offer a complete family of embedded microprocessors, ranging from the very low power processors aimed at the most cost aggressive consumer applications, all the way to high end processor course targeted for the highest performance enterprise and multi-media extensive application.

Our solutions, which are manufacturable in standard low cost seamless processing are the first embedded CPU technology that allows customers to scale a wide range of performance needs with the same basic architecture which allows significant cross elaboration in software and development efforts for our customers.

By completely supporting the highly prevalent ARM architecture, our solution allow our customers to utilize all the existing ARM code investment.

Our high performance embedded processor technology is being used to further [indiscernible - highly accented language] and strengthen our existing product portfolios, such as our wireless LAN offerings, enterprise networking, and storage electronics for the hard disc drive market, as well as being a very strategic-- key strategic technology for our broad push into the consumer market.

This technology will allow the processing power of consumer devices to dramatically increase.

As a result, there's no limit to the features that can be integrated into these devices.

In addition to all these new features provided by the increased computing horsepower, many portable devices are also rapidly gaining broadband connectivity.

What is also exciting for Marvell is that the integration of all these features combined with the broadband connectivity is creating a huge opportunity for the adoption of low cost microstorage in these new consumer devices.

We have been discussing for awhile, the very large unit potential that consumer electronics adds to the traditional PC century of disc drive market.

During Q3, the hard disc drive industry clearly enjoyed another strong quarter of unit growth from consumer applications ranging from PDR's utilizing standard 3 1/2 inch desktop drives, to small compactor drives, utilized by consumer handheld devices.

With the continued highly visible success of disc drive based MP3 players, our disc drive customers are continuing to see very strong design activity in a variety of new consumer platforms, which utilize the benefits of increased storage capacity.

During the quarter, we introduced the industry first SOCs that was specifically designed for small compactor disc drives.

These SOCs should help greatly accelerate the adoption and development of portable consumer disc drives.

The SOC is the first to support the new CE-ATE interface specification,s and is based on our production proven hard disc controller and hard processor technology.

By being based on the same architecture utilized in our 3 1/2 inch desktop and 2 1/2 inch mobile drives, our customers can leverage the same firmware investment across multiple product platforms, saving valuable development resources.

This is proving to be very important to our existing and new customers in this important time in the drive industry, where disc drive manufacturers are looking to invest in new classes of drives, in addition to their traditional drive products.

In addition to offering the most advanced SOCs and re-channels across all drive platforms, we are greatly distinguishing ourselves and adding tremendous value to our customers by offering complete firmware references and many of the other key pieces of Silicon, such as motor controllers, preamplifers, ASIX and power management.

We continue to remain very focused on continuing to drive the adoption of all these products and technologies into this very large market.

Moving to gigabit ethernet.

So far, the industry's transition to gigabit as anticipated has been largely concentrated at the high end middle class equipments and the sophisticated enterprise systems.

With the most advanced and complete solutions, our server both the MX and EX family of switches and software continue to have great success in serving the strict requirements for performance, quality, and reliability that these systems demand.

We continue to be the only company that can offer advanced features, such as full IPv6 support, a large chassis base [indiscernible - highly accented language], and a Marvell distributed switching architecture.

Now with our latest Prestera DX offering, we are ready to drive the next phase of gigabit adoption into the high volume mainstream segment of the market.

The Prestera DX family is a very broad offering of products.

One of the solutions we call Cheetah which integrate 24 gigabits and 310 gigabit ports on a single chip.

We believe we are years ahead of the competition in offering such highly integrated high performance solutions for the value based switching market.

We're seeing very strong design activity for our Cheetah devices, given that we are the only company with such a solution in the market.

Lastly, we continue to make solid progress with our linear DSP Power Management products based on activities continues to be strong and we continue to expand our product portfolio.

Now like other product areas, with our linear DSP products, we're filling a complete catalogue of products as we work to cover the entire Power Management market.

We're also gearing up our module manufacturing capability, and expanding our distributor base to further promote our offerings broadly into the market.

Now I'd like to turn the call back to George for additional comments regarding our financials and guidance for the next quarter.

Thanks, Sehat.

Building on our strong first half fiscal '05 financial results with our strong Q3 results, we have positioned Marvell to achieve another record year and we remain very focused on achieving our business and financial targets.

We continue to develop new products and target new markets to expand our TAM [ph].

Adoption of products based on our analog mixed signal technology across a broad array of consumer platforms and our recent entry into the Power Management market utilizing our linear DSP technology, is definitely increasing our TAM [ph].

Additionally, our position in our established markets remains very strong, and the technology changes that have been underway for some time continue.

Now moving to Q4 and fiscal '05.

The continued adoption of our technology in new product offerings from our customers and our continued market share gains against our competitors positions us for revenue growth in Q4.

As I mentioned on my Q3 commentary, we experienced a number of positive trends that resulted in good breadth of products and end markets contributing to our Q3 growth.

These trends continue into Q4, and we are excited about the opportunities.

I also mentioned that we experienced an overall very competitive pricing environment and high customer inventories in the networking market.

These trends also continue into Q4.

Considering the above, we've targeted Q4 fiscal '05 revenue to increase approximately 5 to 7% from Q3 fiscal '05.

Based on our assumptions of the product mix of revenue in Q4, and our continued operational efficiency, we expect our Q4 gross margin percentage to be 52.5%. plus or minus 25 basis points.

Consistent with our year-to-date fiscal '05 performance, we expect to continue to experience operating leverage in Q4.

While operating expenses in absolute dollars will increase to support our future, they will decline by 20 to 30 basis points from Q3.

Our balance sheet indices should be consistent with the last several quarters, shares used in computing pro forma net income should increase to approximately 304 million.

Now I'd like to turn the call back to Sehat.

Thank you, George, that completes our commentary.

Brianna, would you please poll for questions.

[OPERATOR INSTRUCTIONS] Your first question comes from David Wu of Wedbush Morgan Securities.

Yes, good afternoon, gentlemen.

Very good quarter.

Can you elaborate on two things for me.

Number one, on these new microstorage devices, we've seen the ramp starting in the wettest land.

I was wondering when we would see any volume ramp out of the microstorage devices and any comment you have about the same thing on linear DSP and one question for George.

Can you clarify the thing about your customers inventory in the networking side?

Where have they been concentrated and do you expect that to be gone by the end of your fiscal fourth quarter?

Sure.

Let me tackle some of it and then Sehat-- we'll both try to answer your question.

I think on the storage we've already seen a lot of adoption of, you know, the small form factory drives predominantly at the 1.8 inch form factor right now --the one talked about the most is the Apple iPOD and, of course, there are a lot of nonMP3 players utilizing 1.8 inch and that IDC data indicates that that is the largest percentage of small form factors being consumed.

There are a number of customers developing 1 inch and .85 inch drives.

As to we announced a standard product for the small disc drive platform, and we did begin in the third quarter, late in the third quarter initial shipments into a .85 inch program.

So I think that moving forward, that should be, you know, certainly something that we look forward to both next year.

Suffice to say that the .85 inch products are squarely targeted for the salesman.

The-- there is a mobile in the one inch some cell phones will incorporate one-inch drive but majority will pretty much use the smaller form factors because the device restrictions in the cell phone.

The Power Management--the Power Management we are very, very strong response from, good response from our customers, and we continue to develop different types of family management 8.5 technology to address the many different markets.

What we find out is that as we enter, as we talk to more customers in the Power Management, the requirements for Power Management is very, very diverse.

Different people requires different sets of, you know, requirements such as different levels or different features.

So we are in the process of developing all these many different versions of those products based on the same basic core technology.

Very, very exciting because this is a product that will go into capitalize for us.

Like prior products that we built where we built specifically for specific customers, the products that were built for this, for the Power Management will go into a catalogue, and it will stay there effectively for anybody to use.

So stay tuned on that one.

Okay.

And then David, I'm not sure that we can add anything new on the networking space that you haven't heard from, you know, a number of other companies.

I mean, again, it's one of those things we've said that while we're very pleased with our 7% growth because we're able to do that even when we are faced with the same challenges that many other players are in that specific--in that specific arena, we are optimistic that it would be whatever inventory adjustment or correction is taking place here would be completed by the end of the fourth quarter.

We remain optimistic, we'll update you obviously when we get through the quarter, but one thing we know is intact the gigabit ethernet conversion trend is well underway, and that's going to bode well for us because most of our networking exposure is in gigabit.

My suspicion in some of it's also related to the existing older generations of equipment supporting the fast ethernet.

And because when we entered this business we enter gigabit really essentially this transition is creating a huge opportunity for us in our customer probably is in the middle of trying to clear up some of the older cross ethernet technology and so solutions are not going to be competitive very soon.

So we're very, very excited.

Can you clarify at this point, did the networking business grew for you in both the third quarter and do you expect that to grow sequentially in Q4 as well?

David, we don't break that out any more.

Our breakout is consumer and enterprise.

I mean certainly some of the -- some, you know, segments of each our enterprise business and consumer businesses are growing, such as PC-related things, parts of our business is as well as our new consumer applications, or platforms and I would not say that would be the case in the pure networking.

I see, okay.

Thank you.

Your next question comes from Michael Mesdea of CSFB.

A quick one on the inventory and a couple others.

You said the balance sheet will stay pretty much the same.

Does that mean you don't think you'll be able to grow days any more or are you still going to grow days in inventory.

We've put a five-day range, Michael.

It's very hard to hit a precise number every quarter.

You know, so we believe that if, you know, we're between 65 and 70 days, that's an appropriate level of inventory, you know, to be able to permit us to respond reasonably to customer demand.

So, you know, it could grow as much as 5 more days.

The important point I think stressed on our inventory is everything we're building is the newest generation for products that we're shipping to our customers.

So even if it is growing a few days here or there, it's not really big deal.

Great.

And if I look at your kind of profitability, you talk a lot about operating margin.

Your incremental operating margin last 2 quarters has really kind of come up quite a bit relative to the past, yet your revenue growth has slowed a little bit.

Is there something here?

Is it a lot R&D investments in the past finally hitting or how do we think about incremental profitability going forward in this kind of the range.

Well again, the model, as we said, you know we're sort of the top end of our model and I think our view is that 23% is a very strong performance in the types of end markets that we participated in that we can maintain the high end of our model, current model, I should say going forward while we continue to grow our revenue is going to be a very, very strong, strong performance.

We are, like we have over the last few years, trying to do the best job we can in managing the Company, and so we are constantly looking at our expenses, making sure that we're making our investments or trying to make sure we make our investments in the best areas, and, you know, I think we'll continue to, you know, do that going forward but I will say we must invest.

If we don't invest going forward we're going to have problems in the future.

I guess along that last line.

Last question.

Just how much head room do you think you have when you start to think about the ability to hire engineers, kind of leverage those engineers to grow your revenue, both engineers on the hardware side as you're doing more platform and embedded processors also on the software side, are you hitting a ceiling at all in getting good engineers at the rate you want?

Michael, we will always like to hire the best people we could.

So with the continued increase in the revenue of the Company, we will put more emphasis in setting up our hiring so that we can, you know, we can continue to invest for products that we can deliver maybe 2 to 3 years down the road.

And all this investment, as I mentioned in my comments, that we pride ourselves in building our technology from the ground up within the Company.

All these things takes a lot of resources and dollars and years to execute.

So we will continue to do that and maybe even more so over the next several quarters.

Great, thank you.

Your next question comes from Jim Liang of SG Cowen.

Thank you, I have two questions.

First of all, can you give us an update on the competitive landscape in the gigabit ethernet switching market both for the high end and low end higher volume segments.

And second question, can you talk about the prospect of integrating your communication systems controllers where your ARM microprocessor into a SOC going forward.

Thank you.

Sure, Jim.

As you are probably aware, when several years ago when we entered the enterprise switching market, we decided to focus on the very, very high end, the middle class, the data center, the core, the optical, I mean, the data center and the core networks solution because we believe initially the gigabit penetration would naturally happen for those people that really knew in deep the performance and we also would like to invest our technology so at the high-end so that we can leverage later for the mainstream low end product.

Now, but several years ago, but three years ago we also started secretly the development of internally about on the lower end more mainstream products which is the DX family and leveraging the technology that we were developing for the enterprise class.

And this one probably is unexpected in the industry because people in the industry thought that, you know, we're only high end suppliers.

So the introduction of the Cheetah class of products actually create a huge surprise to all our competitors because this kind of class of device is not expected to be available for about two years.

If you look at products, they're people building, they are typically very, very low end, 12 ports, maybe even 24 ports class of gigabit devices not scalable at all or barely scalability, the 24, the Cheetah class device, it is not just the only products that we have in the pipeline.

It's the first of devices that clearly a lot superior compared to the [indiscernible - highly accented language] devices.

I will say years ahead, not just from the Silicon point of view but also from the software that we can leverage from the high end enterprise class of market.

So a lot of customers are surprised and very excited, okay.

That such a solution now is available for them to -- for them to deliver to the market to replace the aging internet products they've been shipping for the last 5, 6 years.

So this is a huge, huge opportunity for us and that the years to be that we have should be very, very important for the next several years.

And then also if you look at emerging player, we are the only player that has the total solution from Silicon, from software standpoint of view and this really offer a platform solution for our custom come to market.

We can offer solutions to customers within 90 days, we can take to production.

So this is a huge advantage where as our competition number one Silicon side is behind and second they don't have a sort of solution.

Jim, can you repeat the second question that you asked.

Sure absolutely.

Given the fact now you have the embedded ARM microprocessor I was wondering do you plan to going forward integrate the systems controllers with a microprocessor, to the SOC?

Yes, Jim.

The processor technology that we are developing is obviously applicable not just for the consumer market but also for the enterprise class of system controllers, pocket browsers, fire walls.

Now having said that, you'll be surprised to find out that as VDSL coming into place in the consumers, VDSLs fire walls and Gateway's routers will actually need system controllers with very power microprocessors to deal with the huge increase in data rate available to the home.

In fact, the data rates that the VDSLs can provide to the home in certain circumstances is higher than most businesses have through the DS, a fraction if DS 3 lines that they have.

So definitely we'll target the integrations of these high speed powerful ARM processor into the Gateway system controller function.

Thank you, great quarter.

Thank you.

Your next question comes from to Code Acree of Legg Mason.

Thanks, and my congratulations.

As you're moving into a heavier penetration in the consumer markets and start to see that as more of a growth driver, can you talk about sensitivity to seasonality?

Obviously you've completely sidestepped these issues in the near term.

But you do start to get into wireless LAN and more consumer applications, do you start to become more subject to that in the intermediate term?

You know, it's a -- it's a very good question, Cody and it's one that we have a little bit of track record as when we entered into the gigabit market and into wireless LAN market and what we've been able to do is as we penetrated into those markets we grow despite the seasonality, just because again we're coming into the market and growing.

At least for I think 2005, we're probably in a similar situation as it relates to the consumer opportunities because again, you know, we've begun the revenue here in Q3 and I think you can gather from our commentary that we're going to be pretty excited about it for next year.

So I don't think even though seasonality is definitely there that it's going to be something we're going to have to deal with during 2005.

Let me follow up there with a question about your hard drives.

Obviously WD has been a great growth driver over the last few quarters.

Your odds are through the bulk of your penetration curve there, I think a lot investors have been talking about the handoff from WD as a growth driver to maybe what your next big contributor is.

It sounds like you've got a lot of things that are beginning to kick off, maybe here in the beginning of next year and you've talked about a new drive customer, a new market share gain.

But I don't believe that kicks in early in the year so do you have maybe a view to what are the smaller or what are the newer diversified drivers that kick in in the beginning of the year that start to take up some of the slack that may be offered or maybe coming from a WD penetration?

It's hard to answer that.

In the storage business, we don't tend -- I mean, we usually, I mean, historically we did not talk about the design win or opportunities that we have for, let's say, a new customers because in a lot of those, based on our history, typically we cannot predict very well when those new design wins will materialize.

Sometimes could be -- in a lot of cases you can take 9 months to 2 years from the time we had designer wins to go to the production so it depends on the customers we have different schedule.

So those existing--the existing market segments of storage.

Now, the existing market is today also about 300 million units or so per year.

So it's kind of meaningless to look at those markets because you have to assume we went to, I mean, continue to just, to nail down what the exact numbers we're going to get from this market because you have to assume that we're going to aggressively address those markets from -- it's a matter of time before we'll get more of this market.

What's important for the the world to know is that the new market opportunity for consumers, for media players, media players, portable video players, and GPS systems for automotive, for low-cost MP3 players utilizing microstorage devices, for storage -- for storage for smart phone, these are opportunities that can range from, from hundreds, 300 million units, 200 million units, [indiscernible - highly accented language] by the near decade and nobody really knows what the exact size is going to be, but we know it's going to be potentially bigger than the existing market segment.

So this is an area that we're putting a lot of resources as well in integrations, integrating powerful processors to the small form factor drive so it can be more usable for other applications down the road.

Cody, I think you're also asking, which unfortunately we're probably not going to address today, which is, you know, some of our feeling for Q1 or the early part.

I think it's a little early yet for us to comment extensively on that.

I think the best we can tell you is look at what's going position for for us, and, you know, look at the things that Sehat's describing that are coming, and those things all get better with time.

But do those things, while you've got a huge opportunity in the long run in those things, do you see at least some visibility to those beginning to contribute more meaningfully in the relative near term.

We're optimistic along those lines, yes.

Ladies and gentlemen, before proceeding I would like to ask all participants to limit themselves to 1 question due to time constraints.

Your question comes from Seogju Lee of Goldman Sachs.

Hi.

Thanks for the opportunity.

George, just wondering if you could talk about the wireless handset opportunities and if you had any estimates for the penetration rates for the hard disc drive in Y'05, '06?

Thanks.

Okay.

You're asking for 2 different opportunities.

One for hard disc drive.

The other is for Y5.

The -- I will say that the hard disc drive will initially goes into very high end smart phone applications, so the potential opportunities in 2005 probably range in the range of my guess about 10 millions or so types of units while the Y5 opportunity for the cell phones is initially probably bigger for professional opportunity for the overall market and the reason for that is because the -- there are several applications that are emerging.

One is the voice over IP of regular land networks as well as the, you know, [indiscernible - highly accented language] e-mail through your local area networks through the Y5.

So the real number is very, very hard to predict because all depends on the carrier how far, how fast the carrier will be able to finish all the qualifications, qualifications meaning not just Silicon, but qualifications of all the software applications that they have to put into the device.

Remember, the end users are not buying Y5, they're buying an application.

The Y5 happens to be the enabling technology that will make things happen.

So really, really we just know --the only thing we know is everybody's working hard to make it happen.

And then the wireless consumer for Marvell is not just focusing on cell phone side.

We have huge opportunities for other applications such as cameras, you know, printers, and these opportunities will go into production next year as well.

Your next question comes from Allan Mishan of CIBC.

Hey, guys, nice quarter as usual.

Thank you.

Question on storage.

Your major competitor announced that it started shipping to Samsung for desktop platforms where you've been mostly sole sourced I think.

Can you just talk about what you think share looks like, maybe not necessarily for Samsung specifically but for the larger guys, what do you think will be dual sourced on the large desktop drives in the future.

I don't think we want to get into in this forum a detailed discussion about what our competitor thinks they may be doing.

I think the data clearly is pointing that we have past all competitors in our market at the end of Q2 for market share, and as you can probably figure out from our results, you know, that probably widens in Q3.

So clearly, you know, we're doing things that are benefiting our customers which are allowing us to continue to post the growth that we have.

But remember, there are only two providers of technology to the drive industry, ourselves and our other competitor.

So it's not uncommon to expect to hear things about them.

Whether those are reality and so forth is another topic for debate.

But, you know, we've said it before that we believe our market share in storage, in the storage market will only grow over time.

And as far as I'm concerned, I am focused, we are focused on delivering the next generation, even better products all the time to all the customers and continue to support our customers's various needs and quickly response to the changing requirements as they are, you know, as they face large, huge competition from other players.

So we're well known in the industry as the fastest company in the world in terms of responding to a direction, the requirement in the business to be, to continue to be competitive.

And the fact that all the customers they're using our Silicon, are doing fine.

So what else you can say?

I think that's it.

Okay.

And if I could, one over on the ethernet side.

It looks like Intel's losing some share with the PCI express transition in gigabit ethernet controllers.

Is that an assumption that's built into your January guidance?

PCIe for the gigabit nick [ph] side is not going to huge volume to next year.

So we believe Intel is in good position.

And, you know, the end of, I think the best thing is to wait and see when it comes to the next year free refresh.

And I think it's a good, your assumption that whatever is going on in the market during Q3 and Q4 is factored in our guidance.

Okay.

Thank you very much.

Your next question comes from Arnab Chanda of Lehman Brothers.

Thank you.

Question for maybe Sehat, Weili, and/or George.

Try to keep it short here.

I understand that you don't want to give quantitative discussions about some of the new growth drivers, but you have talked about fairly extensively over the different areas.

I'm just curious if you could talk a little bit about around what sorts of time frame and what sorts of drivers should we be looking for maybe is even better from the end market to see things like par management, for example, is it a spring refresh type of thing, are we going to see, is it a PC type of transition, things like consumer wireless LAN and embedded SOCs.

Many hard drives, but if it's not you what should we be looking for from the market to get a sense of how you're doing?

Yeah, well, I think you're right we don't wants to get into a lot of detail on that.

Two things we can say.

In all the areas that you described what we're being, or the products we're being Incorporated into are all new products coming from customers.

So I think that is one thing you can look and the perfect example is Sony Portable PlayStation.

You know, all, it was rumored it'd be coming to the market.

It made its appearance in Q3, there was a positive announcement from Sony about when it was going to be launched and so forth.

And I think those are the kind of things, you know, that you'll need to be looking for as we move forward.

What we've done and tried to do is describe for you the vast sort of universe of things that we're involved with and, you know, we can't predict exactly when all those things are going to happen precisely.

What we can tell you is, these are the platforms.

We're involved.

We're the leader, and the revenue is coming.

We can't be specific, but the revenue is coming.

In terms of the Power Management as I have said many, many times in the past, this is a product that really in a category of catalogues of products, so, you know, it will impossible for me to talk about all the possible design win opportunities in the market and to keep track of which one is happening, which one is being delayed, which one requires a new Silicons with the different features.

It's not practical.

It's more practical, all you have to believe is is the market big enough for us to play.

This is a large opportunity or not for us to play.

We have the technology and the rest is a matter of time in terms of where -- what the volumes is going to be, and we cannot be specific and exact customers or exact models of customers using the Power Management.

We'll be talking about that only when we don't have nothing else to talk about.

Again, next quarter which we'll report Q4 in February, we will give our -- as we do every year, we'll give you our outlook for calendar 2005, and, you know, we will be giving some examples of why we think, you know, the drivers are in that growth that we'll be commenting on.

Great.

If I could just have one more follow up.

Two factors you've talked about are adoption of drives as well as adoption of wireless LAN and cell phones.

Is that something where you need, is it a 3G type of transition?

Is it an edge type of transition, if you could maybe clarify that a little bit.

Sorry to persist here.

Thank you.

The [indiscernible - highly accented language] drives will be used mainly for two things.

One is to store video, visual pictures.

If you believe that majority cameras are going to be shipped individual camera, telephone drives would be useful for post large a pictures that you're going to take.

Second is the music the MP3 audio capability into the cell phone.

And other things would be obviously taking the camcorder function into the cell phone.

Those probably going to be a smaller functions next year, more important probably 2, 3 years from now for the camcorders to be materialized until they're developed more powerful.

I think, Arnab, just maybe backtrack just a second.

I know your question centered around cell phones, but I think it's very important to understand that we're not just talking about just 1 platform.

We are are talking about multiple consumer platforms that are going to adopt or in the process of adopting 802.11 technology.

Look at it a different way, we're spreading the risk across a much wider market as opposed to being just very narrow.

Thank you very much.

Your next question comes from Karl Motey of Wachovia Securities.

Thank you.

Just on the subject of wireless LAN, it's a hot one of the areas that you did not talk about were PCs.

What, if anything, are you doing to get into embedded applications and desktop and notebook PCs either directly or with some of your partners?

Thanks.

Sure.

On the -- we problem very, very beginning, if you track our commentary on wireless LAN from I'd say close to a year or so ago.

Over two years ago.

Over two years, we have been very consistently stated that our goal in developing wireless LANs at that time for us to address consumer market.

We believe the market for consumer is completely different in PCs and, as a result, the solutions that we have developed over the last few years is completely optimized only for embedded handheld type of applications meaning what I mean by optimized or handheld applications.

Meaning we're the only solutions that have embedded a system, system, ARM system with the wireless LAN.

As a result our Y5 solution is not a Y5 device.

It surely is an end user device.

So our customers can employ new applications from wireless MP3 streaming machines to wireless speakers to all the different applications simply by changing software.

So we have not addressed the PC or laptop market because those markets do not require the embedded microprocessors.

They have enough computing power on the main CPU so that they can use a thumb down wireless device.

Now, our solution, of course, has the smallest form factor and also lowest power.

Now with the -- on the desktop or the mobile side the desktop we have some of the ODM players use our wireless and due to the highest integration and smallest form factor and they actually put on the form on the motherboard.

In that case, it's a unique product because their products will allow our customers to shut down the CPU, the main CPUs in a sleep mode and allow the system still to operate with embedded processor that we have in the wireless LAN so that was a unique application to save power for the -- so that we're not using the PCs.

They can still use their wireless function to be repeaters, for example, to serve the whole house.

Okay.

Thank you.

Your final question comes from Aalok Shah of Pacific Crest.

Hi guys.

Couple quick questions for you.

One is George, I think you introduced Power Management or you at least talked about it about a year ago now.

Can you at least give a sense that are pleased with the progress that you've had in Power Management.

I think you talked about $100 million at least in revenue next year.

Are we on that goal and then the second question I had was on the hard disc drive side.

Are you starting to get a sense that maybe the hard disc drive vendors are starting use a kind of a dual source or not go to the exclusive kind of component that they've been doing for the I guess 5 years?

Well, yeah, I mean, I think Sehat's said it a couple times.

He's very pleased or we're very pleased with the Company with the progress that we're making on our Power Management.

This year is not about revenue, those of you who have heard any of us talk about it.

We just introduced the product.

We had a $10 million bogey for this year and we feel comfortable with that.

This is this year is about getting the products developed.

Broadening the portfolio of the product, gain design wins and those are all things that are absolutely moving along like we expect that they would for this year.

We will set a very aggressively aggressive internal target next year for this product line at the $100 million dollar level so, yes, that is still what our internal target will reflect.

So, yes, we're pleased.

We have a lot work to do.

I mean, I don't want to imply that we're there yet, but we're certainly moving along a path that, you know, I think we're pretty satisfied.

We're never satisfied, but we're working along that path.

On the storage front, you know, I mean I think, you know, and I want to be careful but, you know, there are not many examples of where there's dual architectures being put forth by storage players.

They're very, very costly to develop and maintain.

So normally, in experience, I mean just the market history will show you this is that when a supplier gets comfortable with a technology, he tries to utilize that technology to the maximum extent.

And the firmware side, right, it's a platform solution not just the pure Silicon.

Right.

So I think that still remains to be the predominant view of, you know, what we see in the market and, of course, we, we work very hard to provide the customers with technology that makes that an easy decision for them.

And also to provide customers with technology a year, a year and a half before they need the solution so that they don't have to risk their company for what they utilize our solution.

So see any reason why people want to spend, work harder to make less money.

Great.

Thank you.

At this time there are no further questions.

Are there any closing remarks?

All right.

Okay.

Brianna, thank you.

This completes our Q3 fiscal 2005 conference call.

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

Thank you.

Thank you.

This conclude's today's conference call.

You may now disconnect.