邁威爾科技 (MRVL) 2005 Q4 法說會逐字稿

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

At this time, I would like to welcome everybody to the Marvell Technology Group Ltd fourth quarter and fiscal year 2005 conference call.

As a reminder, today's call is being recorded.

For opening remarks, I would like to turn the call over to Dr. Sehat Sutardja, Chairman and CEO of Marvell Technology Group.

Dr, please go ahead.

Thank you, Matthew.

Welcome, everyone, to our fourth quarter and fiscal year end of 2005 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.

Today we are pleased to announce the results of another record year and fourth quarter for Marvell.

We have now been a public Company for five years and are very proud of our financial performance during this time period, including breaking the $1 billion revenue milestone, growing our revenues quarter over quarter for 29 consecutive quarters and counting, and consistently delivering the lowest cost and value-added solutions into our market, helping to drive our strong operating performance and positive cash flows.

Our long-term strategy of leveraging our core technologies and expertise across multiple large volume markets is clearly paying off.

Given all the large opportunities ahead for Marvell, I will have to say that there is even more excitement and enthusiasm within the Company today, as there was back five years ago when we just had our IPO.

As we continue to grow the Company, we are currently starting to enjoy the benefits that come along with being a sizable organization.

With a strong growth of Marvell and the dedication and hard work of our employees, we have developed world-class operations and an incredible breadth of industry-leading technologies, which we are aggressively working on leveraging across many additional, high-volume markets.

As we enter into a new fiscal year, we are very excited about our prospects for continued strong results.

With years of heavy investment, we are now positioned to enjoy the reward of revenue growth on the consumer market as our new customers begin to launch their products.

This is just the start of our focus and broad expansion into the consumer market as we work to aggressively expand our portfolio of products, specifically a design for a variety of high-volume consumer applications.

And, of course, we're not losing any focus or excitement for the enterprise market.

The enterprise market continues to be a huge market for us to serve and provides many tremendous opportunities for continued growth as we gain additional market share from our competitors.

I will elaborate more about these opportunities and our business progress, but first, I have George give our Safe Harbor statement and provide more insight into our fiscal 2005 and Q4 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 preceded by words like expects, anticipates, believes, should, will, may, or words with similar import.

These statements include those related to the pace of our business for 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 had we undertake no obligation to revise or update publicly any forward-looking statements for any reason.

The financial results that we are presenting today are unaudited.

The complete audited financial statements of the Company for fiscal 2005, including our assessment of internal controls, as well as our independent auditor's report on internal controls, will be included in our annual report on Form 10-K, to be filed with the Securities and Exchange Commission on or before April 14, 2005.

Now moving to the Q1 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.

Marvell'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 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 fourth quarter of fiscal 2005 was a record $343.4 million, an increase of 40% over the $243.3 million reported for the comparable quarter in fiscal 2004, at a sequential increase of 7.1% from the third quarter of fiscal 2005.

Net revenue for fiscal -- for all of fiscal 2005 was $1.2 billion, an increase of 49% over net revenue of $820 million for all of fiscal 2004.

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 $75.2 million, or $0.24 per share diluted, for the fourth quarter of fiscal 2005 compared with pro forma net income of $41.3 million, or $0.14 per share diluted for the fourth quarter of fiscal 2004.

Pro forma net income for all of fiscal 2005 was $251 million, or $0.84 per share diluted, compared with $131 million, or $0.47 per share diluted, for all of fiscal 2004.

Shares used in computing pro forma earnings per share diluted for the fourth quarter of fiscal 2005 increased to $308 million, as compared to $288.4 million shares for the fourth quarter of fiscal 2004.

Net income on the generally accepted accounting principles, GAAP, for the fourth quarter of fiscal 2004 was $54.9 million, or $0.18 per share diluted compared with a net income under GAAP of $19.8 million, or $0.07 per share diluted for the fourth quarter of fiscal 2004.

GAAP net income for all of fiscal 2005 was $142 million, or $0.47 per share, compared to GAAP net income of $46 million, or $0.16 per share for all of fiscal 2004.

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

Now I'd like to make some additional comments on our Q4 results.

Our Q4 revenue of $340.3 million was another quarterly record for the Company, and the 7.1% increase in revenue from Q3 to Q4 was at the high end of our guidance of a 5% to 7% sequential increase in quarterly revenue.

The increase in Q4 revenue represents the 29th consecutive quarter of revenue increase.

As is typical, Q4 was a seasonally strong quarter for our PC enterprise business, although this segment continues to exhibit a very competitive pricing environment.

As mentioned on our Q3 call, net working inventories were still high entering Q4, but as we expected, they returned to a more balanced level by the end of the quarter, allowing us to see some small growth from this segment in Q4.

As Sehat mentioned, we're in the early stages of our revenue ramps in the consumer market.

Following the late Q3 commencement of shipments to Sony portable PlayStation, we continue to ramp volume in Q4 to support Sony's successful Japanese launch in December of 2004.

We were pleased to achieve the high end of our Q4 guidance of 7% sequential revenue growth, and we continue to see expanding breadth of products and end markets contributing to that growth.

For Q4, our enterprise markets represented approximately 80% of revenue with consumer the balance.

We had four 10% customers in Q4, Western Digital, Samsung, Toshiba, and Fujitsu.

Q4 gross margin of 52.2% continued our consistent gross margin performance for fiscal 2005.

Given the competitive nature of our end markets and the increasing revenue percentage contributed by the consumer market, 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 Q4, we continued our tight control on operating expense growth, while continuing to invest in the development of new products, technologies, and advanced process geometries, to keep us in a leadership position in our targeted markets.

For Q4, operating expenses grew 1.6%, but our continued strong revenue growth again resulted in a reduction of pro forma operating expense as a percentage of revenue to 28.4%.

That was 150 basis point decline from Q3 and 120 basis points favorable to our Q4 guidance.

For the 14th consecutive quarter, we increased our pro forma operating income percentage.

Again, given the strength of our revenue growth, our consistent gross margin percentage, and lower operating expenses as a percentage of revenue, we increased our operating income percentage by 110 basis points to 23.8%, which is above the high end of our long-term model.

Shares used in computing pro forma net income per share for the third quarter increased to $308 million compared with $284.8 million for the fourth quarter of fiscal 2004.

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

Moving to the balance sheet, our balance sheet continues to remain very strong.

During Q4, we generated approximately $83 million in cash and exited Q4 with cash in short term investments of $660 million.

DSOs for Q3 were down 1 day to 53 days.

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

We continue to timely manage our inventory.

For the last several quarters, we have been very consistent in keeping our days of inventory in the 65 to 70-day range, plus or minus a couple of days, and ensuring that our production levels going forward keep us in the most favorable position to respond to increases in demand for our products.

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

Thanks, George.

Last year was definitely a very exciting year for Marvell as we began to see the benefits of our move into the consumer market.

After years of investment into the specific technologies that we predicted would be required by the consumer market, we're now beginning to enjoy volume shipments into a variety of new consumer applications.

We also continue to experience strong design activity across a variety of high-volume opportunities at OEM's, work to introduce new products that frequently require wireless and wireless connectivity, high storage, high speed processing capabilities and advanced power management, all of which, of course, plays right into the proven strength of Marvell.

A clear example is evidenced by the breadth of new consumer designs we continue to win and are beginning to ship incorporating our wireless LAN solutions.

Our technology is enabling these devices to enjoy the many advantages of the 802.11 technology in a variety of exciting ways that go beyond simple network connectivity.

With our highly integrated solutions and sophisticated feature sets, we allow very simple and reliable operations and easy setup so that the end user transparently uses the wireless LAN features.

A great example of this is our wireless LAN functionality that is integrated into the exciting new Sony DSP handheld games, which just enjoyed a very successful market introduction in December.

With this one platform, millions of users are quickly realizing the many different usages that wireless LAN can provide to a portable consumer device.

Such usage models go way beyond what was originally envisioned by the traditional PC wireless LAN connectivity solutions first deployed in the market.

From the very beginning when we decided to enter the wireless LAN market, we specifically architectured our 802.11 solutions with these unique implementation and technical challenges of such consumer devices in mind.

As a result, our industry-leading solutions are uniquely positioned with extremely low power, ultra-compact size, and embedded high performance microprocessor technology with sophisticated consumer-oriented features.

For example, just last month, we further distinguished our solutions with our announcement of the industry’s first 802.11 a/g single chip solution embedding TCP/IP networking processing capabilities.

With our unique architecture, we enable our customers to seamlessly integrate wireless LAN functionality in to their existing system architecture and take on new usage models, such as peer to peer printing, ad-hoc gaming, streaming audio and video, and voiceover IP applications, to name a few.

With the strength of our solutions, we continue to see very strong fractions across high-volume applications such as cell phones, digital cameras, printers, PDAs and speakers, in addition to the continued strength in gaming.

We are on track to ship into all these consumer -- different consumer devices this year with a number of these exciting products beginning to ramp this quarter.

In addition to the strong adoption of wireless connectivity in consumer devices, we are also very excited about the continued strong growth of hard disc drive technology into the consumer electronics market.

Both handheld portable entertainment devices utilizing very small form factor drives, as well as PDR's and gaming incorporating 3.5 inch desktop drives continue to show very strong unit growth.

The consumer adoption of HDD technology is still just beginning and is expected to continue its strong growth through the end of the decade.

We are focused on aggressively expanding our portfolio of advanced solutions, specifically developed for small form factor drives.

Based on the strength of our solutions we continue to see strong designs as evidenced by having two new customers, one-inch drive using our SOC technology during the quarter.

Additionally, we believe that our solutions will continue to enable us to gain further market share in both small form factor drive, as well as the traditional drive form factors as the year progresses.

The growth of all these new consumer applications is also giving us tremendous and diverse opportunities for our high performance and various microprocessors and media DSP power management products.

We continue to make strong progress in expanding the capabilities and breadth of these solutions.

With our ARM based embedded microprocessor we are working on a number of different SOC products specifically targeted at a variety of high-volume applications.

We look forward to discussing more specifics on these products and their target applications during the course of the year.

In addition to these new SOCs, we also remain on schedule in incorporating our own high-performance microprocessors across many of our existing product lines, including our wireless LAN offerings, enterprise networking and storage electronics for hard disc drive markets.

Many of our customers are excited to see the integration of such high-performance microprocessors so they can put lower system cost empowered by running many tasks, they are currently handled by many semiconductor devices.

When we consider all the different opportunities for us to drive the adoption of our technologies into these emerging consumer applications, we are very excited.

It is a very large market with many diverse segments where our focus on technology is clearly distinguished and drives great value for our customers.

Of course, we also remain very focused and see continued tremendous opportunities for the enterprise market.

The continued transition from fast ethernet to gigabit technologies continues to provide strong opportunities for growth as we look out to next year.

For infrastructure switching, we continue to see very strong design activity, focused on the very high volume markets and mainstream segments of the market.

Our chip-based solutions that are specifically targeted for this segment, continue to enjoy very strong success as it continues to be uniquely positioned as the only such solution in the market.

We are excited that many of the designs that we have been winning over the past six to nine months with Marvell's total solutions, when we compete with both the silicon and software are now rolling into production with major tier one OEM.

Finally, on the client side, we are positioned strongly for continued growth as more of the industry transitions to PCI Express this year.

Additionally, we are finding many sizable gigabit client opportunities outside of the traditional PC market as many other devices look to attach into the networks.

I would now like to turn the call back over to George for additional comments regarding our financial and guidance for the next quarter and fiscal year.

Thank you, Sehat.

For the last several years, we have included as part of our Q4 call guidance for the new fiscal year and then specifically for Q1.

And we will continue with that trend this year.

For fiscal 2005, it was a very strong year for Marvell with our entry into the consumer market and then development of our embedded high performance microprocessor and Linear DSP power management products.

As we enter fiscal 2006, our position in our served markets continues to strengthen.

We are executing on our objective of significantly increasing our addressable CAM.

Having reached the $1.2 billion revenue level in fiscal 2005, we are now ready to continue our growth.

For fiscal 2006, our revenue should range between $1.540 billion to $1.590 billion.

During fiscal 2005, we were successful in achieving the long-term operating model established at the beginning of the year.

As we move forward, we believe that the long-term operating model is consistent with our business strategy of growing Marvell into a very large semiconductor company.

Consistent with that model, gross margin percentage for fiscal 2006 should range between 51% to 52% and pro forma operating expenses should range between 27% to 29%.

Now, moving to Q1 fiscal 2006, our business momentum in Q4 was quite strong, as evidenced by our Q4 results.

Entering Q1, which is normally a seasonally slower period, we're encouraged by the continued ordering patterns from our customers, and consequently feel that seasonality in Q1 will have no significant impact to our Q1 revenue.

As I mentioned in my Q4 commentary, we experienced a number of positive trends that resulted in good breadth of products and end markets contributing to our Q4 growth.

These trends continue into Q1, and we're excited about the opportunities.

Considering all the above, we've targeted Q1's fiscal 2006 revenue to increase approximately 5% to 7% from Q4 fiscal 2005.

Based on our assumptions of the product mix of revenue in Q1 and our continued operational efficiency, we expect our Q1 gross margin percentage to be 52% plus or minus 50 basis points.

Consistent with past years, we normally experience a larger increase in operating expenses in Q1, which will result in Q1 operating expenses increasing as a percentage of revenue by 20 to 30 basis points.

Our balance sheet industry should be consistent with the last several quarters.

Shares used in computing pro forma net income should increase to $310 million.

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

Thank you, George.

That completes our commentary.

Matthew, would you please poll for questions?

[Operator Instructions].

Our first question is from Cody Acree with Legg Mason.

Thanks, and congratulations, guys.

Let me start by just some breakdown of how you expect to get to this level of upside in revenue growth in 2006.

Can you maybe talk about how much of this is going to come from some of your newer products and how much of this comes from your core products?

Well, we can't be too specific, Cody, but I think we've been pretty clear this past year that, you know, we were just starting our consumer push and, you know, we started the year with consumer revenue representing less than 15% of our revenue, and when we exited the year we were representing right around 20%.

And our objective is, by 2007, to have that to be 50% of our revenue.

So it's likely that we'll make some more progress towards achieving that objective as we go through fiscal 2006, so I think that means wireless LAN, small form factor drives, embedded microprocessors, all with -- and power management -- all of the various technologies that were to be developed to attack that market.

Can you maybe at least rank what you expect to be the biggest contributor?

I think the wireless LAN. 802.11 is clearly where we are -- we've really made a lot of headway in a short period of time.

Again, let’s not look over the short term, because really we have to look over the long term.

The long term, as George had mentioned, is the growth, obviously growing from 15% to 20% to 50% target of consumers, based on consumer markets that it could be the biggest contributor of growth in the next several years.

So in looking quarter to quarter, it's really just hard to say which one is in the quarter.

And then just finally, maybe for Weili, can you talk about what's going on in the infrastructure markets, specifically with your Prestera architecture, what you expect that to be contributing to growth in the next few quarters?

Yes, I think Marvell's traction in that market is very, very successful.

As you see, the industry in the last couple of years has changed quite a bit.

All the system companies I think are doing ASIC has been shrinking, so the Marvell total offering has been very strategic for all those key players.

And we see a very specific growth this year and continue for number of years for the long term.

All right.

Thanks, guys.

Our next question comes from Michael Masdea with Credit Suisse First Boston.

Thanks a lot.

Nice guidance and results, guys.

First question, I guess, is on the consumer side.

Is that ramp of the percentage of revenue, at least for some semiconductor companies it's causing problems with understanding how the supply chain works and issues with forecast, etc.

Can you talk about that dynamic and any changes to your operations or anything that takes place as consumer becomes a larger percentage?

I don't know what the -- I don't get the question.

Well, I think, when we are moving into this market, we're still dealing with very large companies, very large OEM's, such like a Sony and some of the other players, so these are -- the model is not really appreciably different than what we do in addressing the PC market.

They're just new customers, so there's a learning curve factor of getting to know the customer and so forth.

But as far as how we'll go about selling the products and how we go about manufacturing the products, I don't envision it being any change to what we currently do.

You don't see any increased risk just because of the lumpiness potentially with products hitting or not hitting, or is there any way you can guard against that?

It's early yet.

I don't think we have to deal with that problem yet.

The idea is that the recipe that we have used all these years is to focus on large customer base, customers that care about performance quality, features of our products, the reliability of our products.

And that recipe works very well for us because it allows us stability in the revenue.

Yeah, I think the one example, the Sony DSP, it's, you know, a very short period with million units ramping, and so far the feedback is our wireless LAN is flawless.

So, you know, it has executed very well.

Great.

I guess just a followup would be on the -- obviously a lot of traction on that hard disk drive into consumer and in the small form factor area.

Can you talk about kind of how you see hard disc drive versus flash flame out (ph) and what your customers are saying, especially in areas like the handset or some of the consumer electronics where you have both out there right now?

Yes, obviously both have their place in the consumer market.

The flash is basically targeted for lower capacity segments of the market.

I mean, an example of that is the Apple Shuffle.

That one is flash-based so today it's, I guess, about (indiscernible) to maybe a gigabyte or so.

And then (indiscernible) to higher capacity as the flash guys bring their devices.

But if we look at the microdrive, one-inch microdrive is shipping at about six gigabits holding (ph) to 10 gigabits and the end of the year probably you will see close to 20 gigabits introduced with a one-inch microdrive.

So physically, effectively what we can see from the trend is for about the same price, you get about 10X of capacity.

So as long as people need more capacity, like HD TVs, camcorders, high quality digital cameras, hand held DVRs, where you also need a micro-drive for them, you will need for the flash.

So I guess, in other words, the sweet spot of what your customers are demanding is still ahead of what flash can do, and it's more on the hard disc drive, and you don't see that coming to an end any time soon?

Right.

And then another thing, it is really too early to tell is that as soon as -- the small form factor microdrive is still shipping comparatively at lower volumes (indiscernible).

You mentioned here this manufacture at the same volume of (indiscernible) drive, you can see tremendous cost leverage, and potentially the cost will be so low that flash might not be able to compete even for the low capacity.

Great.

Thanks a lot, guys.

[Operator Instructions].

Our next question is from Bill Lewis with JP Morgan.

Great.

Thank you.

My question is really about gross margin decline, maybe at the low end of your guidance, and your comments about the aggressive pricing environment in the enterprise.

Could you just talk about what were the pressures on gross margin this quarter, and maybe why it came in to the low end of your expectations?

And was it related to pricing in hard disc drives as it sounded like, or is it kind of the emergence of the mix contribution of consumer versus your enterprise product?

It certainly is the latter, Bill.

Again, at our size now, it's extremely difficult to get a precise, you know, prediction.

That's why we give a range on our guidance so that it incorporates what we believe can be changes in the mix, you know, as we go through a quarter.

That's basically what we saw materialize, you know, as we got to the end, through the end of the fourth quarter.

But I think it is also indicative of the comments that we made that our long-term model is 51%, 52%.

You know, we're on our way to, you know, along our path to becoming a very large semiconductor company.

And when you look at the markets that we participate in, a 51%, 52% gross margin is an extremely impressive, you know, performance.

So I think that, you know, we're not at all feeling bad about, you know, what we posted in Q4 and what we expect to do, you know, moving forward.

We're in control of that, I think is the major message.

Sure.

I guess I wanted to understand as you looked at fiscal ’06 and give us that range consistent with your targeted model?

Just so I understand correctly, that's basically a reflection of the rising consumer piece, which, you know, might have a lower margin contribution.

Is that a fair statement?

I mean, we have a lot of things going on, and there will be other new things that we'll talk about as we move through fiscal 2006, and so it's really a mixture of everything, of all the products that we ship to all the different markets.

Right.

But you're right.

Consumer markets by and large are a little bit long.

Okay, thank you.

Our next question comes from Ross Seymour with Deutsche Bank.

Thanks.

Just a question on the wireless LAN business that you highlighted.

Two things, one, is there a differing ASP or margin profile depending upon the applications that you're targeting, whether it be digital still cameras, cell phones, or gaming?

And then the second part of that was, is a ramp into cell phones part of the growth expectations you've built in for this year?

Okay, in terms of the wireless LAN, we specifically, as I mentioned in a previous call, that our solutions are primarily targeted for handheld devices, consumer applications.

So in those applications, the solution are very much similar, so there shouldn't be any significant difference in pricing, either one application, the other application.

Typically the differences are really more of a result of different types of packaging.

Maybe a much, much smaller compact packaging will cost slightly more than a traditional packaging for the same devices packaged into a different contractor (ph).

So overall, I think there's nothing to do, it's not really a significant difference within those handheld devices.

There is a big difference between the handheld device and the PCs.

But in the PC market, you do not need an embedded microprocessor, so you could build the devices smaller.

In fact you don't have to worry about the power consumption so either you can build the devices with maybe a different architecture – maybe they run and have higher clock frequencies, but as a result, you are having a higher power.

But those are not very much everywhere.

We really focus completely on the consumer market.

So the second question, Ross, that you asked is, clearly, you know, we started out with seeing, you know, our early penetration and success with the gaming platform, but as Sehat mentioned, you know, there's a number of different platforms that we have design wins across, such as cell phones, PDA's, printers, and so forth, and we do expect to ship revenue into every one of those platforms this year, so the answer to the question is yes, we do have some cell phone revenue built into our expectations for this year.

Do you expect that to be a greater -- the adoption of wireless LAN in cellphones to be greater than that of the small form factor drives?

Maybe you can just give a little color on the adoption of those sorts of technologies and whether it happens simultaneously.

Actually, it's hard to say at this point.

Again, as everything with new technology, getting into new market segments, it's really hard to say which one will take off first.

But clearly, you know, this is not our concern.

What we're concerned more about is what if two years from now, three years from now, where which one is going to be bigger.

But if you look two, three years from now, microdrive, small form factor microdrives and wireless LAN probably will be neck to neck.

Maybe the wireless LAN will be a little bit higher market penetration than small form factor drives because the wireless LAN functionality will be included with every phone, including the (indiscernible) phone, and microdrives will be used in small feature phones and MP3 players for example, but that is for pure voice calls.

They're so big, there's a huge opportunity for us.

Great, thank you.

Our next question comes from David Wu with Global Crown Capital.

Yes, good afternoon.

Very good quarter.

Congratulations.

I have a couple of quickies.

First, George, you mentioned that operating expenses would go up by 20 to 30 basis points as a percentage of revenue, did I hear you right, in the first quarter?

That's correct.

Okay.

The other thing I was wondering, was the fourth quarter very strong revenue growth, did that come out of that Sony game console ramp, or did it come from gigabit ethernet switch improvement, which you mentioned also?

Right, so we don't break it down specifically, David, by segment, but what I alluded to were there were really three segments that contributed positively to our growth, the PC enterprise market, the networking infrastructure having resolved its inventory issue, and therefore, contributing positively, and certainly the ramp into Sony was a contributor.

So all three of those contributed, you know, significantly to the 7.1%.

I see.

There are some fairly -- can you describe how you won the portable thing, and does it have any implication about the more desktop type, the ones that are coming down to pike, two very big ones, one from Mr. Microsoft the other one from Sony?

I think it's really too early to talk -- I mean, you know us pretty well by this time that we try not to talk about future design win activities on a specific basis, which platforms that we are working on.

But suffice to say that the technology that is useful in one and it is usable for the other end.

So we are clearly -- we're very focused in all those market segments.

Well, thank you very much.

Thanks David.

Your next question comes from Charlie Glavin with Needham & Company.

Thanks.

Kind of going back, turning back to I think Michael's question, George, if I break down the numbers, when you're taking a look at those 50% of consumer value in 2007, are you talking calendar or fiscal?

Calendar.

Calendar.

Calendar.

In taking a look at that, and even if I go out that far, it looks like enterprise right now, even if the top-line were to grow 30%, 35%, that this is -- the enterprise is going to slow down as a percentage of growth in terms of the transition.

When you look at that, are you going to be, how should I say this, are you going to blurring this again between the enterprise and the consumer, and can you make that distinction?

Because right now it looks like you're going to be about 10%, 11% growth on the enterprise side in order to hit that 50% sort of mix on consumer.

And if that's the case, how much of your enterprise design wins are needed in order to fuel the consumer side, just small form factor?

I don't think we have worked with the precise --.

Really.

The timings.

When we say that the 2000 sales like rough say like at 50% we also – would be just as rough numbers, whether they are said to be 40 or 45 or 50 or 55, that's not so material to us.

I think the point, Charlie, is you know we are a well established player in the enterprise market, in both, you know, storage-based products, as well as communications-based products.

Just as Sehat mentioned, there's still lots of room for growth, and we do expect to continue to take market share against the other players that we compete against.

The idea of consumer becoming 50% of Marvell just reflects the tremendous opportunity in the size of the market that's out there.

So I wouldn't want to get too precise as to, you know, what exactly the growth rate might be, you know, in either one looking out in 2007, let's you know deal with fiscal 2006 first.

Maybe looking at different ways, I apologize its more what do you need to enable some of those markets?

Sehat, you had mentioned that in terms of the wireless LAN versus small form factor (indiscernible), we're hearing from the OEM's spending a lot of work in terms of their ruggedness, particularly the damage to the heads as phones or other things are dropped.

How do you address that, or do you need to look towards the OEM's resolving that with third parties in order for your solutions with these small form factors to be resolved?

Sure.

Yeah, you're not the only one that have heard this kind of question.

I personally have the same questions when I visited some other players there that make cell phones.

They have plans to use a small form factor drive into the cell phones.

They are concerned about the shock resistance of microdrives.

But one thing I can tell you, without disclosing specific customers data, in general, in general, we're seeing over the last about three to four years ago, the technology has progressed drastically from -- from devices that were capable to withstand only about 50 g's of shocks in operating devices there, and the last survive up to 2,500 g’s in operating condition.

2,000 g’s level is higher than most flash modules expect at.

So we don't see these as technical problems anymore.

It's more of an educational problem that we in the industry now need to resolve.

But, you know, I believe this will be -- as soon as people see all those devices in the handheld device they have they will see that it's not going to be a problem.

Sehat, to the point, is that something that the OEM's will need to resolve more, or is there certain analog components such as accelerometers (ph) or something that you would be putting in?

You don't need an acceleromter to solve this problem.

No, of course it will help, but it's -- we thought accelerometers -- the reality is it's all so high already, that you don't have to worry about it.

As I say, this is more a perception problem than reality.

Okay I'll take the -- to follow up on that offline..

Thanks guys.

Thank you.

Your next question comes from Jim Liang with SG Cowen.

Thank you.

Can you give us an update on the competitive landscape in the consumer wireless LAN market and talk a little bit about your competitive advantages?

Sure.

As we said several times in the past, over the last year and a half or two years, when people are watching us -- well, we are going to see you in the PC market on some extraordinary note.

We're not building the wireless LAN for PC use, specifically designing a solution to address handheld markets where things have on to run on SA (ph) power, things have to very strong.

The thing has to be able to coexist with cell phone bands, whether it's just a band or wide density CDMA bands or any other bands that it permits us to operate on.

So all the little things that people care about in handheld devices, but not in a PC environment.

So all the same things that we talk about is, I mean, all the advantages that we provide.

We are basically several years ahead in terms of addressing this problem, Now of course our competitors now are starting to see the true market opportunity for the wireless LAN, for this market.

And they also, I'm sure are doing a crash program to replicate our achievements.

But some of these technologies are actually patented.

So we have you know we have a lot of IP's that we have put into these solutions.

Well, in terms of market penetration, we believe we have the majority of market share in terms of consumer wireless.

In consumer correct.

And actually, we are also starting to show up more now even in the PC enterprise wireless market, and I think that is an area while, again, we don't focus on that, our solution is so powerful that it is being used there more than it has been in the past.

So in terms of the number of viable long-term competitors similar to the hard disk drive chip market which is where you know seven, eight years ago, there may be ten suppliers today.

So, do you see a similar trend happening in the consumer wireless LAN market?

I think that's absolutely true, Jim.

I mean, you know there used to be this -- there were 24 guys doing a HDD when we came to the market.

Now there is two.

You know, there's only two or three doing gigabit ethernet.

So, you know that seems when technology gets very tough, the number of players that are able to address those markets, you know, definitely decrease.

In general, I will say that the semiconductor market is a mature market.

Every now and then, you see new technologies and dozens of startups you know came up from nowhere, all claiming that they are working on the products so they have the solutions or whatever.

But if you look in the long-term, because this market, the semiconductor market is a mature market, really, it's only a handful of large, large semiconductor companies that can address this kind of high volume market opportunities.

Great.

Just a followup question on this subject.

As far as the wireless LAN adoption in the cell phone market, two questions on that.

Number one, as far as the voice over wireless LAN applications, when I talk to investors, some of the concerns are there.

Is there an infrastructure in place from a carrier perspective for significant adoption of voice over wireless LAN over cellular and over the next 12 months?

And then the second question on that is, some of your competitors have, in the wireless LAN, in the cell phone market, have also the cellular baseband chipset technology.

Do you see that as a competitive disadvantage for you at all?

Well, there are just obviously there are so many ways to cut the pie.

Things can be integrated one way or the other.

You can integrate a device to the left or integrate a device to the right or top to the bottom.

So I will not see that as a competitive disadvantage because of a lot of the baseband price is evolving rapidly 3g is just coming, even 3g is not fully completed.

There is a lot of revisions being introduced into the market.

And even the WCDMA HSDPA still is evolving.

So 4 g’s – people are talking about 4 g's and 5 g's.

Even the wireless LAN connection is evolving.

So there are a lot of opportunities for us actually to come up with unique products that will integrate different functionality.

They will make the overall solutions to the lower power, lower cost and (indiscernible).

Obviously we are -- I cannot be specific like what we do and what we've integrated, how we integrated.

So we cannot be specific on that yet today, but we are actively looking -- I mean, working on addressing those questions that you're asking.

Voice over wireless LAN?

Well, voice over wireless LAN.

So obvious a lot of the access customers have been going the trail runs, and very successful trial runs I can say.

So, what does it mean?

It means the infrastructure is there already.

Is there complete infrastructure?

Probably not.

But building the infrastructure for voice over IP is quite trivial, it is much, much less, lower cost than building let’s say a new 3g network.

Great.

Thank you very much.

Great quarter.

Thank you.

Thanks.

Our next question comes from Arnab Chanda with Lehman Brothers.

Thanks, guys.

And let me join the chorus about the quarter.

A couple of questions.

One, could you talk a little bit about your wireless LAN business?

What's the mix of say B versus higher speeds like G, and how do you expect that to change as you get more designers in the consumer market?

And I have a couple of follow-ups.

I cannot be too specific, but eventually everything will be G. Anything that's B today is just a partition stage and so it will be going to G. And I can say a few years down everything will move to N, but you know everything takes times.

We are shipping A, B, N, G right now.

Great.

So is CSP going to go to G over time or --?

I'll be in trouble if I disclose that.

Okay, no problem.

You can make the assumption yourself that everything in the world eventually has to move up.

Great.

One question about the par management business.

You had the product out there for about a year or so.

Where do you think you're going to see most of the growth from, and do you expect that to be a significant contributor for '06?

When we introduced these products, those would the first few products that we developed.

We are you know continually developing a number, and when I say number, it's like many, many new products that will fill the requirements for many different applications.

So this is an ongoing process in this market.

The more we look into this market, the more as enter this market, the more products, the more opportunities that exist in the market, and the more chips that we have to build to address those markets.

So it is potentially a huge, huge market opportunity.

And some of these things obviously will have a hockey stick platform of their path.

So one last question, Sehat, could you talk a little bit about your gigabit ethernet controller business?

That actually started declining when Intel tried to do its own product.

Should we expect that to grow through 2005 and even beyond, or how should we think about it?

Weili do you want to address it.

Sure I think Intel is always the favorite topic.

I think, as we said, just wait and see.

You know we can't really discuss the detail of our customers’ programs.

But as far as a general answer, it's doing very well in that case.

Should I interpret that to mean it's going to grow through this year sequentially or --?

You have to read your crystal ball Arnab.

Like our track record in the past.

Right.

Okay, well thank you very much, guys.

Okay.

Your next question comes from Allan Mishan with CIBC World Markets.

Hey, guys.

Do you have a good estimate for what your market share is just in gigabit switching?

I'd say, you know, you versus your top competitor.

You know, I don't know if there's actual data available like that.

I mean, I think our view is that, at this point in time, we're significantly ahead on the gigabit portion of the market given our Prestera and Cheetah-based products.

Remember that we made a commentary, we are now shipping those products to customers, so we've gone way past the sampling and evaluation stage, you know, that maybe other players are still in, and we're now in the actually having products in the market that are being shipped.

So that market share thing is going to move around, depending upon whether you're looking at it on a shipment basis or a design basis or announced products basis.

So I think, you know, we don't get too hung up on that.

I think the main thing is we believe we're doing extremely well with all the major customers that we've targeted, and as long as we continue to do that, we're going to have a very significant market share.

I think the other thing is you might want to look at here is, go open some of these boxes and look at the byte capacity that we provide versus our competitors, and you can see why, why we're winning.

Okay, great.

And I notice Fujitsu popped up as a 10% customer.

Can you offer any insight there, whether that was enterprise or just notebooks?

What happened there?

A combination.

Combination of both.

Okay, and if I could just go at the Intel question one other way, do you anticipate them being a 10% customer sometime during this year?

The bar to be 10% customer is getting raised.

That's correct.

I think we'll defer on that for a little bit, but we're very excited about the opportunities with Intel.

Okay.

I figured as much.

Okay.

Thank you.

Our next question comes from Sandy Harrison with Pacific Growth.

Thanks.

Good afternoon, guys.

George, you talked in your prepared remarks about the first quarter.

You know, you guys are able to basically buck the seasonal trends that usually haunt that period.

Could you rank the areas that are going to provide you the greatest growth, whether it's the enterprise or consumer or, even more specifically, some of the products.

You know, is it hard disc driving, given the fact that you're hearing constraints by some customers, is it the wireless LAN, or has networking turned the corner and we expect to see some growth from there?

You know, I think you're going to – I am not going to give you quite as much detail as you probably want here.

But if you think about what we said about Q4, where our PC enterprise business, which is both, you know, storage-based products as well as communications-based products did well, you know, it's going to do well in Q1, as well.

So we're looking for growth coming from that overall segment.

Networking exited the quarter in better shape than it entered the quarter in, and therefore, it should be a growth driver or a growth contributor also in Q1.

And then, you know, the big guy is the consumer wireless and small form factor.

Those things are going to go up every quarter as we move forward.

With all the talk about constraint on some end markets, do you see that, you know, could the number you talked about in Q1 have been better potentially in your outlook if, you know, your capability or whether the ability of other parts was out there, or, you know, just looking in your crystal ball?

We're not going speculate on that.

I think we've put a very reasonable guidance out there for everyone to chew on for a while, and then we'll go from there.

Great.

Thanks, guys.

As a reminder, please limit your questions to one per caller.

Our next question comes from Dushyant Desai with CE Untherberg.

Two questions.

They are related.

Hard drive segment, there is some talk about shortage of disc drives from the integrators’ point of view, so when you have your guidance for the quarter and the year, how much of that is a factor, if at all, and is it related to components or it is related to some other issues?

I think I have to be careful on this one, because I know too much about some of the issues that some of the customers – our customers are having.

So if I talk about it and they are going to get upset with me and they never tell me anymore, all this information.

But I will say that whatever problems that some people may have on constraints, the way I look at it based on the data I get, I think it's more a temporary problem that can get resolved.

If you ever resolve it somebody else will pick up the volume.

So one way or the other, it will be resolved.

If it doesn’t get resolved, their competitors will shift the volume.

Our guidance, as you know from years past now, always factors in some things happening, you know, adversely in the market.

So, you know, we always put those things in there, and then, of course, if some of those adverse things don't materialize, things get better.

So hopefully we've incorporated into both the Q1 and into the overall year, some of the challenging things that are going to be out there.

Got it.

And then on the drives, one of the things -- you know, there was a discussion about in 2007 calendar year, consumer approaching 50%, and would that be roughly time frame where in terms of units, the micro drives being consumers, start to be comparable to the rest of the drive or start to overtake the drive?

Is that one of the factors you're thinking about?

Well, some of the market predictions show that time period as being the anticipated crossover.

So yes, certainly.

If that materializes like they think it will, then that's absolutely going to support what we're saying as the objective.

Thanks for the clarification, and congratulations again.

Our next question comes from Sathyu Lee (ph) with Goldman Sachs.

Thank you.

Just I was wondering, in the fiscal 2006 guidance, does it assume the addition of a new desktop customer, or is that still more of a fiscal ‘07 event?

Thanks.

Well, I think as we have said, you know, we're looking at different generations of drives, and probably our ability to gain additional market share is tied to 160's at this point, and we don't anticipate 160's to be a big volume contributor this year.

Its year is probably more in calendar 2006.

Okay, great, thank you.

See you tomorrow, George.

Our next question comes from Jeremy Bunting with Thomas Weisel.

This is Jenny Sheil (ph) calling for Jeremy.

Just a couple of questions on the gigabit ethernet side.

George, in your comments, you alluded to some pricing pressure on gigabit ethernet.

Was that one of the clients or the infrastructure side?

You know, I didn't say specifically, you know, it was gigabit ethernet, I just said our PC enterprise business is very, very price competitive.

Okay.

But clearly those markets, especially the ones that are mature, obviously you're a little more challenged there, and our challenge is to continue to reduce our cost to keep us very, very competitive, which I think we do a pretty good job at.

You know, the networking probably hasn't -- the infrastructure probably isn't quite as much pricing yet because it still hasn't ramped to its own volume, but when it does, it's going to go through that same curve like the other markets do.

Okay.

I apologize for perhaps mishearing your comments earlier, but also one additional question.

Are there any – what additional market opportunities do you see for gigabit ethernet outside of the PC on the client side?

Where gigabit --what other -- I don't --.

I don't think we want to talk about it, but we hinted that there are other opportunities, but we want to stay at that -- I don't want to be too specific, it will be too obvious.

Okay.

And just one question on a small form factor drive.

You have two -- you're shipping into one-inch drives, one is WBC later on, and then who's the other one.

Is it Magic Store?

Magic Store, yes.

Okay, and are they SOCs, or is one SOC and the other is a discreet?

Everything we do is SOC at this point.

Okay, all right.

Thank you very much.

Our next question comes from Ambrish Srivastava with Harris Nesbitt.

Hi, guys.

Just a quick question on the WD ramp, it was up pretty nicely last quarter.

Are we pretty much done with the ramp, or there's still some headroom there?

And do you expect the growth there to be whatever organic growth you get via WD’s growth in the market?

Thanks.

Well, you know, we've been engaged with WD for over two years now, and it's been very, very successful, we believe for both companies.

I think we achieved the objective of getting into the platforms that we expected to get into by the end of the last fiscal year.

That does not imply that all those platforms are ramped, you know, to their full volume yet, so I think we should still benefit from some of that as we move forward.

The other thing is, you can also read through the lines, when we work with our customers, we want our customers to be successful against the customers that are not using our products.

So we do work very, very hard to make sure that our solution are the best optimized, properly tuned to make our customers to gain market share than those that do not use our products.

So there will some growth from that angle.

And would you expect the one-inch ramp to start there?

We don't know exactly what they talk about, so I think have to --.

I think you have to ask them that questions.

Fair enough.

Thanks.

Our next question comes from Shaw Lou (ph) with American Technology Research.

Great quarter.

Just one quick question on your inventory build.

Is the increase more on the storage component side or WiFi or networking?

Well, we don't break our inventory down by product, but I think the answer is if you look at the areas where we said we expect to see growth, then obviously we're building, you know, product inventory, you know, in those areas to support those growths, and clearly consumer wireless is going to be a big component of that.

Okay, thanks.

Our next question comes from Alex Gunner with UBS Warburg.

Yes, thank you.

I was wanting to clarify in terms of your positioning with Toshiba .85, is that yet available in production right now?

What are your expectations there?

And then in an associated sense, I was wondering post 3GSM conference, what your thoughts are in terms of the timing of the opportunity of the hard disc drive market in significant scale in the handset market?

On the Toshiba, again, we do not know what they said publicly, but I could will say that we are starting shipping chips.

The .85-inch design.

In reasonable volume.

So what we do not know whether they are building, how much of those they shipped to the customers or not, so we do not know, so we don't speculate on that.

But from, you know, we do know whether it was Toshiba or somebody else, working .85-inch, the capacity for the first year or two, probably they will be capacity constrained in terms compared to the demand in the market.

So the cell phone guys there can sign contracts with the early flyers will have an advantage compared to the guys there who wait.

They have to do a wait and see attitude in our position in terms of getting the .85-inch.

So this is what we sense, okay.

If let’s say you want to – let’s say to get a .85-inch allocation, I do not believe you will ever be able to get the next year (Multiple Speaker).

We haven't necessarily seen the models released to market yet, but your insights into the marketplace suggest that the strategic agreements and allocations are being sort of put in line.

Is that correct?

Yes.

Okay.

Very good.

Congratulations.

Great quarter.

At this time, there are no further questions.

Please proceed with your presentation or any closing remarks.

All right.

Well, thank you, Matthew.

This completes our Q4 fiscal year 2005 conference call.

I would like to thank every one of you for joining us and look forward to updating you in the next quarter.

Thank you.

Thank you.

Thank you, ladies and gentlemen, for joining us today.

You may now disconnect.