邁威爾科技 (MRVL) 2008 Q1 法說會逐字稿

Good afternoon, everyone, and welcome to the Marvell Technology Group, Ltd.

first quarter fiscal year 2008 financial results conference call.

Today's call is being recorded.

For opening remarks and introductions, I would like to turn the call over to Dr.

Sehat Sutardja, Chairman and CEO of Marvell Technology Group, Ltd.

Please go ahead, Dr.

Sutardja.

Thank you, Kathy.

Welcome, everyone, to our first quarter fiscal 2008 conference call.

Mike Tate, our interim Chief Financial Officer, is also on the call with me today.

Today we reported Q1 revenue of $635 million, which represented the year-over-year increase of 22% and a sequential increase of 2% from the prior quarter.

We had previously guided our Q1 revenues to range between $640 million and $650 million on our Q4 earnings conference call last February.

Our Q1 revenues came up a little short of our forecasted range, given an overall weaker demand environment across some of our markets.

We believe this weakness is due to seasonality in the first half of the year being a little more pronounced than originally anticipated, especially in the hard drive market.

Despite the seasonal softness in some of our end markets that limited our of revenue growth this quarter, we continue to be positive about our leadership positioning in our existing markets and the progress we are making in applying our technologies to serve additional large markets.

Given the strength of our technology and our continued focus and execution, we are positioned strongly to continue and enjoy very solid long-term growth.

With that, I would like to turn the call over to Mike to provide more insight into our Q1 financial results.

Thank you, Sehat.

Good afternoon, everyone.

I would 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; and expectations regarding revenue growth, gross margin, operating expenses, other income and expense, cash, 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 regarding -- relating to our guidance for the second quarter of fiscal 2008, the pace of our business, 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; the inability to successfully integrate the application and communication processor business acquired from Intel; 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, quarterly reports on Form 10-Q, recent current reports on Form 8-K, and other Securities and Exchange Commission filings, all of which discuss other important risk factors that may effect our business, results of operations and financial conditions.

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

Now moving to our Q1 fiscal 2008 financials.

As we indicated in our press release, we will only be reporting revenue for our Q1 fiscal 2008.

Today we reported that net revenue for the first quarter of fiscal 2008 was $635 million, an increase of 22% over the $521 million reported for the comparable quarter in fiscal 2007 and a sequential increase of 2% from the fourth quarter of fiscal 2007.

Our Q1 fiscal 2008 revenues of $635 million was slightly lower than our guidance of $640 million to $650 million.

The shortfall in our revenue is primarily due to the desktop and mobile hard disk drive markets experiencing greater-than-expected seasonal softness during the quarter.

Although the seasonal weakness is not beyond normal historical levels, the softness in the first half of this year has been more pronounced than the preceding two years, which had experienced much more muted seasonal cycles.

The rest of our product families fared reasonably consistent with our expectations.

During the quarter, our Prestera networking products continued to show solid growth, given the market's ongoing transition to gigabit ethernet.

Our XScale processors had a strong first full quarter of shipments, with particular strength with our communication processors for smartphones.

Wireless LAN was down a little from the prior quarter, given seasonality in the embedded consumer applications, but is positioned to grow nicely from here, given our pipeline of new design wins that will be ramping during the course of the year.

During the quarter we had two 10% customers, Western Digital and Samsung.

While we cannot provide detailed numbers for our gross margin and operating expenses, the following are trends that we experienced during the quarter.

On our Q4 conference call, we had indicated that our Q1 pro forma gross margin percentage would be consistent with Q4.

Our actual Q1 pro forma gross margin percentage was slightly better than expected due to our continued strong manufacturing performance.

Operating expenses for Q1 included a full quarter of the XScale business, our annual salary increases, and the costs related to our internal review of the Company's historical stock option practices.

On our Q4 call, we indicated that we expected our operating expenses would increase at a rate slightly lower than our guided revenue growth rate.

However, our operating expenses for the quarter ended up slightly higher than expected, due in part to the higher-than-anticipated ongoing costs related to our internal review of our historical stock option practices.

In other income and expense, our net interest expense was consistent with expectations, but included in other expense was a one-time charge of approximately $5 million to reserve a prior equity investment we held in a private company that had become impaired during the quarter.

Our balance sheet continues to remain strong.

Our Q1 cash is relatively flat from Q4, declining $3 million to $593 million.

Our accounts receivable and DSOs declined, given improved sales linearity during the quarter.

Our inventory days increased slightly from the prior quarter, due primarily to lower-than-anticipated revenue shipments this quarter.

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

Thanks, Mike.

Although there is some current seasonal softness in parts of our business, we are still focused on our continued solid execution on expanding our world-class product portfolio and advanced technologies, which will position us strongly for growth.

In many of the markets we address, we are in the forefront of some exciting technology growth transitions, which we believe will drive tremendous market growth as well as strong adoption of our advanced solution into those market.

It is exciting to think about these opportunities that such large and dynamic markets as the cell phone, wireless, optical storage, and video can provide us given our unique technological advantages we can offer our customers.

In the cell phone market, we continue to be very encouraged about the strong execution from an operational as well as on a new product development front.

The integration of this new business within Marvell continues to be progressing well and we are receiving very positive feedback from our customers in regards to the products we have recently introduced, as well as our strong roadmap.

We are also pleased to see strong design activity from new customers who have not historically been focused on the XScale products.

During the quarter, O2 in Europe became another major carrier to launch a 3G phone based on our advanced solutions following the Vodafone launch in February.

We also continued to work closely with RIM to support their ongoing product launches and strong business strength.

Also during the quarter, we commenced sampling our first highly-integrated Single Chip communication processor, which combines an [HSDPA] 3G base band with a high-speed application processor.

In regards to our application processors, we continue to see diverse design activity beyond just cell phones and smartphones.

Our customer base is very large and we have high volume shipments into many different applications such as GPS, PDAs, VoIP phones, and a variety of handheld devices for the mobile work force.

Many of these applications are beginning to also incorporate the benefits of wireless LAN and Bluetooth, which bodes well for incremental growth of content and future integration.

In regards to wireless LAN and bluetooth, we continue to receive very solid design wins and are on track to start shipping our integrated wireless LAN and bluetooth Single Chip Solution in high volume in the second half of this year.

Additionally during the quarter, we introduced a second bluetooth device with an integrated FM radio.

All of our bluetooth solutions are completely certified to support extended data rates, 2.0.

As the clear leader in the embedded wireless LAN market, we are in a strong position to leverage these designs to now include the bluetooth and FM functionality.

We are seeing great interest and exciting designs in high-volume applications, such as MP3 players, cell phones and gaming.

Moving to gigabit internet, the market transitions from fast ethernet to gigabit internet continues to provide us strong growth.

This transition, which is sweeping across the infrastructure market, is moving from the edge equipment into the home.

Given both the increased use of video and voice over the network, as well as the growing number of network-attached devices such as smartphones and gaming devices, the level of sophistication of the switching equipment is greatly pushing for new levels of intelligence and faster speeds.

As a result, the high-volume SMB market is quickly moving from unmanaged fast ethernet to smart managed gigabit solutions.

These trends play right into our strength and leverage the years of investment we have been placing in our Marvell Total Solution, or MTS, which combines our advanced silicon with complete software.

We're excited, as we believe we are in the front -- in front of a very strong cycle that will capitalize on the years of investments we have made.

In the hard disk -- drive market, we continue to expand our clear leadership position by offering our customers the most advanced solution in the market.

(inaudible) nobody else is coming close to match our intensive level of the investment we continue to make in next generation storage technologies.

We have such advanced solutions enabling our customers to introduce products that lead the competition in aerial density and performance.

Recent product announcements from our customers illustrate the advantages of our technology, as they are able to introduce drives at capacity points well ahead of their competitors.

This quarter, Samsung introduced an industry-leading 160-gigabyte (inaudible) 2.5-inch hard drive, and Toshiba and Samsung have both announced 80 gigabyte, 1.8-inch small form factor hard drives.

One of the critical components that allows such increases in aerial density is our SOC rechannel.

Our SOC's ability to achieve better signal tone noise ratio, or SNR, allows the hard drive to pack data even closer together on an an even-drive platter, allowing for higher capacities.

In a homeowner-type market, like the HDD market, such incremental improvements can translate into share gains and improved profitability for our customers.

We have always offered SOC's with, by far, the best SNR, which has provided our customers with measurable advantages in the market.

Once again, we are very excited to announce that we have dramatically increased our SNR advantage with a revolutionary technological break through.

After over six years of internal development, we have now achieved the holy grail of rechannel development with the industry-first [etherotec] rechanneled SOC.

Our patented implementation of these extremely complicated and advanced etherodip algorithms will even further our customers to improve SNR and performance, which will allow even greater capacity points and manufacturing yields.

We have incorporated this break-through technology into our new SOCs, which will go into production early next year.

Our customers are very excited about the tremendous improvement in performance we will be offering, which will greatly enhance the competitiveness of their products in the market.

Finally before I turn the call back to Mike for our Q2 guidance, I would like to discuss our transition to 65-nanometer technology.

While we have not publicized our phone efforts in this area, we have made great progress to date.

Much of the hard work in transitioning to 65-nanometers is actually largely behind us, given the up-front investment we have made in our 90-nanometer development.

During our 90-nanometer development, we addressed one of the major bottlenecks of any process migration by consolidating our analog processor specifications for both 90 and 65-nanometers.

As a result, the majority of our 90-nanometer analog IP cores that we have developed over the past two years -- actually maybe up to two and a half years ago -- are also easily portable as if to 65-nanometer.

While these initially created an overhead for us during our 90-nanometer development, we are now in a position to reap the benefits, as our 65-nanometer mainly just requires a simple porting of the digital back end.

We're happy to report our initial 65-nanometer designs have been very successful with just a simple blind porting from 90-nanometer and have worked flawlessly.

With this investment behind us, we are in the strong competitive position to offer our customers products from both processes that can be optimally selected to meet the market's requirements.

With that, I will now like to turn the call back to Mike for additional comments regarding our financials and guidance for the next quarter.

Thank you, Sehat.

As I mentioned in my Q1 commentary, we are experiencing seasonal softness in some of our markets.

Although the seasonality is not beyond historical levels, it appears to be persisting into the second quarter.

This seasonal softness is mainly limiting the contribution of our stores' revenues in our last quarter as well as into Q2.

Offsetting the seasonality, we expect resumed growth from our consumer wireless LAN products and stable market conditions for our communication and application processors, Prestera networking and printer ASIC products.

Based on the above factors, we believe that our Q2 revenues should increase to approximately $645 million.

We expect Q2 gross margin percentage to improve slightly from our Q1 gross margin percentage and our Q2 pro forma operating expenses to again increase at a rate slightly ahead of our rate of revenue growth.

Although we are investing in a number of new product initiatives, we also remain focused on controlling our expense growth and expect our expenses to grow at a rate below our rate of revenue growth in the second half of the year.

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

Thank you, Mike.

I have one concluding remark.

As you know, Marvell recently announced the completion of an investigation into the Company's historical stock option practices.

As that matter is presently the subject of ongoing litigation, it will be inappropriate and ill advised for me to comment on any aspect of the investigation, and unfortunately, I will not be in a position to field any questions about the investigation during today's call.

I am, of course, pleased that the investigation is over, as Marvell can now move forward with the restatement.

We thank investors for your patience, understanding and most importantly, your belief in the Company during this past year.

That completes our commentary.

Tammy, could you please poll for questions?

Sure.

(OPERATOR INSTRUCTIONS) Your first question comes from the line of Louis Gerhardy with Morgan Stanley.

Please proceed.

Yes, good afternoon.

Can you talk about the outlook for storage and then the consumer and communication business separately for the July quarter in terms of type of sequential performance from each of those?

Well, Louis, we don't break them out specifically, but for the hard drive, we are seeing some seasonality in Q2 and it is our expectations for that to be a little soft here in Q2.

It does appear that the drive market is facing pretty historically typical levels of seasonality, which we would expect on the second half of the year to, obviously pick back up.

On the rest of the business, we do expect a number of product ramps to commence, starting in Q2 and moving into the back half of the year, especially in the consumer wireless LAN and also continued growth in the application and communication processor business.

Great, and just a couple follow-ups on your storage business, specifically on the enterprise drives in the July quarter.

Would you expect any change in your market share there?

And then also, with regards to the new SNR performance and the products that will ramp in 2008 -- calendar 2008, would you expect your share of the market to increase then?

Yes, Louis, so we don't expect any -- any changes in the enterprise market share.

As you know, we do have a large market share over there.

With regards to the new technology, the etherotec technology that we have just finally been able to show samples to our customers, of course this is a very exciting technology because this is one of those technology that comes every ten years or so.

And this technology is yet another piece of key (inaudible) technology that we provide to our customers in the storage business to make them to be more competitive.

So by -- so with such an important technology, we do expect, okay, and we will work hard to make sure that we'll gain more market shares for next year.

Thank you.

Your next question comes from the line of Cody Acree with Stifel Nicolaus.

Please proceed.

Thanks.

Following up there with some market share talk, can you talk about what you've seen since the integration of XScale, what you've seen in the smartphone market as far as your belief of market share?

In the -- in the smartphones, so I -- okay.

What I've seen from the sample of new customers that we have -- not just from new customers, from existing customers, as well as new customers, we are gaining numerous design wins as we continue to be the only one in the market to have -- that can deliver application processor -- high-performance application processor, low power targeted for the smartphone.

So a lot of -- a lot of customers -- we have even customers that during the transition between acquisition of Intel to the Marvell had -- was concerned about having access to the XScale technology and have maybe mistakenly switched to competitor solutions are now coming back to use our technology because they are seeing that after all, okay, our technology's still the best in the business.

Now -- but that's not the only reason why they are using our technology.

The other part is because they are seeing our roadma -- our strong roadmap providing even more advanced processor technology, as well as some of the IPs that we're developing that can be integrated into the cell phone.

We are -- there are not too many companies in the world that can integrate a 3G base-band processor together with application processors.

In fact, okay, we are the only one to have the highest performance application processor device integrated with a 3G HSDPA base-band processor today.

So we're seeing -- we are seeing a significant design wins activities across the board.

All right, great.

And then a follow-up if I may.

Sure.

I know that you can only make tertiary comments on what's not wrapped up here with the options issues, but can you talk maybe more about the personnel changes, what's your plan, what's the strategy to fill some of the holes that have been left vacant?

As we indicated in our prepared remarks, we're not going to be able to go into any details on the current options investigation.

The press announcement that we had last week goes into considerable detail and then we're working on our 10-K filings, which we're hoping to get out soon, which will obviously be providing more color on those.

But not necessarily just the options issue itself, but we've got some fairly significant management holes now.

I guess what's the plan, what's the timing, what's the strategy for making sure that those holes are just temporary?

Obviously we hope that they are just temporary and we are working, obviously, diligently to resolve those.

All right.

Thanks.

Gentlemen, your next question comes from the line of Seogju Lee with Goldman Sachs.

Please proceed.

All right, thank you.

Sehat, Mike, Just wondering if you could talk about the progress of the XScale business in terms of the revenue contribution, as well as the progress you're making in terms of the cost side, in terms of improving the cost structure on the product?

Yes, I can cover the -- maybe first the progress of migrating the process technology.

As you -- as you are all aware, the XScale processors were originally developed using proprietary Intel processes and we are in -- we've been progressing -- we've been migrating those designs into existing designs -- I should be more specific --existing designs into the foundry.

And initial samples look very, very promising and we are on target into migrating those devices, especially the higher-volume devices [first] into the foundry.

In the meantimes, all the new designs -- all the new designs are complete [redesigns] in the foundry process.

So we are -- we are heavily engaged in the developments of 65-nanometers base-band and application processors and advanced processor technologies, video technologies and so on.

So all this activities are going as planned, and as those devices goes into production at the foundries, we will be able to see significant margin improvement, significant cost reductions as well as better capacities, more sta -- practically unlimited capacity from the foundry.

So, you want to cover --?

Yes, on the revenue side, the base band is positioned very strongly in the smartphone class of phones, which is a segment of the market that's doing very well.

We're continuing to do very well supporting RIM's growth.

In addition, we are now sampling our next generation HSDPA base-band and the feedback's been very positive for that new device.

Also on the application processor side, we have announced the Monahan family in November and we're getting very good design traction with that device and we're expecting a nice ramp of these new application processors in the second half of the year.

Okay, great.

And in terms of -- you set some preliminary objectives previously in terms of revenues as well as margins.

Are we still progressing to hit those as you exit the year, do you think?

Yes, we're continuing to see good execution of the business and consistent with our ex -- the expectations that we set at the beginning of the year.

Great.

Thanks.

Good luck.

Thanks.

Thank you.

Your next question comes from the line of Arnab Chanda with Deutsche Bank.

Please proceed.

Thank you.

Hi, Sehat and Mike.

It's been a pretty tough time here.

I just wanted to have a couple questions as to the future.

First of all, I know it's hard for you guys to talk about targets or models, but what do you think -- if you look at the gross margin for the entire Company, do you think it's likely that you'll get back to your historical margin model, kind of the revenue and operating margin -- gross margin and operating margin, gross margin operating margin and sort of at what timeframe, or maybe if you could update us on that> And I have a couple of follow ups.

Sure.

Yes, our model is still the same; 50% gross margin and 24% operating margin.

We are on track to hit the 50% margin first and hopefully by the end of this year we achieve that.

And then the operating margin will be a function of, one, our gross margin improving, but also with the revenue growth that we expect given that we -- in the different product areas we have.

So the goal is to hit the operating margin in the near future, but hopefully towards the end of next year.

Thanks, Mike.

A fall question for Sehat or maybe for you both.

If you look at your Intel -- I'm sorry, XScale -- it's no longer Intel.

If you look at your -- or maybe your handset business, cellular business, what type of expectations do you have for this year?

It seems like it is going a little bit slower than you thought at the end, or maybe I'm wrong on that.

What do you think the expectations are for this year?

And then what do you think that type of -- what type of growth rate do you think that could experience maybe in the future?

Actually as I say earlier, we have -- we're seeing a large number of design wins.

And I want to reiterate that this is a very exciting opportunity for us because a lot of phones -- a lot of peoples -- a lot of customers -- a lot of people are more and more interested in providing phones that are smarter, would have more capability.

So in fact, our bottleneck essentially today is our field -- our field application supports to address some of this new design wins.

So we are, we are heavily hiring fields support engineers in initiatives where a lot of these activities are happening.

So we're very excited, okay, because the customers -- customers -- a lot of people -- lot of customers are excited about our products.

So it's just a matter of time then I think we believe that we will -- we will be able to have the scale to make this business to be a very, very profitable business in the next couple years.

Okay, and last question, again, either for Sehat or Mike, a couple things.

Obviously there are many issues to address right now, but you had in the past talked about things like optical drives or your video product line or even printers.

Could you give us some sense of how those things are progressing relative to what you expect and whether they would be growing faster or slower than your overall Company, especially for the calendar year 2008 timeframe?

Thank you.

Actually, actually there is a conference on the SID sometimes -- is it this-- next week or the end of next week, I forget -- showing the prog -- we'll be demoing a bunch of new products at -- our video technology products or technologies in that conference.

So it's -- for some reason I think the schedule for this conference is a little bit earlier than some of the new products that we were to plan to announce in the next month.

So in terms of video, video is the one -- a very important areas for the Company to address and we have been investing heavily in this area and some of this technology you will see in the market and we are -- clearly have the leading edge -- the most advanced video technology in the market.

By no means we have complete everything, but by sometimes next year, we'll have complete end-to-end solutions, okay?

What we started -- as I said in previous conference call, we started from the back half, from the post procings -- from the video post processing side in terms of developing our technology into the market because this is the area that we can clearly show, clear differentiations in the market and we'll -- we are on our -- on our target in introducing the front-end side, which is more of a standard requirement.

So this is an important (inaudible) market areas that we're targeting squarely for our future growth of revenue growth.

How about optical drives or printers?

Yes, optical drives -- yes, optical drives, we are on progress.

We are working with a couple of customers as well as we are increasing our resources in firmware activities and we are also -- we just also recently sampled our high-definitions implementations of the optical.

So we have a lot of activities in parallel, working on new technology to address the high-definitions optical because, after all, the industry will move to high-definitions very, very rapidly.

So while in the past we -- okay, while we entered this business -- this market very, very late, we want to make sure that in high-definitions we're now going to be -- we're going to be late, especially coming out with highly integrated solutions.

Thanks, Sehat, and congratulations, Mike.

(OPERATOR INSTRUCTIONS) Your next question comes from the line of Michael Masdea with Credit Suisse.

Please proceed.

Yes, thanks a lot.

I guess with all the talk of seasonality one thing that we got used to in the past is the number of ASP and customer trends, which drove -- got rid of the seasonality that you typically see and it seems like we've at least run out of that for the near term.

Is there something that gets you back to that level where these seasonal trends don't impact you as much in the hard disk drive market?

Well, for the past five years -- we started from a very, very small player in the hard disk drive market and we've been continuing to gain share and we now with the SOC, we're nearly 60% market share.

As we look forward, we still believe with the advanced technology we have -- especially the new technology that Sehat was talking about earlier today -- that over time we will continue to gain share.

But given the nature of the hard drive market where there's really only six major customers, the remaining share opportunities for us will be a little more spotty, I guess, and at times where we're not gaining share, we will look more like our end customers,which in a typical year has a seasonal pattern.

But the positive point is that we're largely through the seasonal part now and we look forward to the back half of this year.

All right.

(inaudible) we can ease a little bit of the seasonality by giving our customers with a -- with a more advanced technology, so hopefully -- so hopefully these things will be -- will be softened a little bit.

Right, right.

Thanks.

Then I guess switching to the other big chunk of business on the ethernet side, there seems to be more noise from competition.

I guess there's always been noise, but you have on the high end (inaudible) and other system (inaudible) still talking, but maybe the [melinox] is the most incremental.

Do you see anything changing in the ethernet market in terms of competition or is it just still more noise and you feel like you're still doing a good job when you're looking out into next year?

Ethernets -- there are a few things that you talk about.

So on the enterprise, we talk about the enterprise class switching gigabit, ten gigabit, parabit switches, back planes, we're absolutely the clear leader in this market.

We have the most complete, diverse solution in this market from the [mantle] space all the way to the small -- the pizza box stackable solutions.

We have -- we absolutely have the most complete and the most -- okay, the most efficient implementation at the -- from the entry level to the most advance solution today in the mantle space.

Now, you also mentioned about our -- one of our competitors in the Wi-Fi space, so in the (inaudible) space -- in the wireless space, as you're aware, the Wi-Fi -- the Wi-Fi consortium, I guess -- how do you call it, consortium, or -- just basically announced that Marvell 802.11n draft 2.0 is chosen one of the primary test bed for testing of all the Wi-Fi chips in the market.

So the reason we got chose on that is be -- for that as a test bed is because we are the early company that had contributed to the Wi-Fi certification standard committee in terms of standardizing the 802.11n, so obviously we are in a -- we have technologies there.

They are considered to be world class in this market.

Now, we have various products to address this market.

Not just from the highest end, but also we have the most diverse solutions for the embedded space, for the -- for the cell phones, for the handheld gaming devices, so I think -- we don't see anybody else in the embedded space that comes close to us.

Good, got it.

Thank you.

Your next question comes from the line of Craig Ellis with Citigroup.

Please proceed.

Thanks, guys.

I wanted to shift the attention over to the wireless LAN and just see if you could comment on the relative growth prospects you see across a couple of the key applications, whether they be gaming embedded in the handset and retail, et cetera, as you look out over the rest of calendar 2007?

The wireless -- the opportunity for wireless obviously in both in the PC space, the router space for the home and the biggest and eventually the largest opportunity will be for the handheld devices.

So for cell phones, if we're talking about cell phones, we have lots activity in cell phones.

We're talking, about -- we'd also be talking about MP3 players.

We have quite a few number customers implementing our Wi-Fi -- embedded Wi-Fi solutions for MP3 players.

We'd be talking about VoIP phones for the home as the replacement for cordless phones for the home, they're phones that can be -- that can go to the internet.

So those are the opportunities we're talking about.

Now, the technologies are here actually, so the -- what's -- what caused the markets to move maybe not as fast as we all like to see is the software porting platforms for all the different markets and this is one of the largest investment that we have to put in the Wi-Fi.

Actually it's not in the silicon development, actually it's in the -- in the software side.

And we've been investing in this over the last several years and we think as more and more products are introduced in the market we'll have a better position to reap the benefits of seeing that this Wi-Fi technology get into this high-volume markets.

Sehat, is it possible just to compare and contrast some of the growth opportunities you see this year?

You mentioned MP3, cordless phone, et cetera, but what are some of the incremental drivers from here as you look out over the rest of the year?

I think it's mainly executing [philosophies], I guess executing design wins and delivering incrementally into some of the markets that we need to play as much in the past, okay, integrating Bluetooth into more of devices.

Remember, we -- historically we never played in the Bluetooth segment.

This one a mistake that probably -- if you can call it mistake, one of the things that we forgot to focus on in the several years ago it was in the Bluetooth site.

Now we have proven -- proven technology and fully certified technology, so this one of the areas that we need to focus more -- more integrations, more functionalities to address some of the markets that we never had played earlier.

Okay, that makes sense.

Then switching to manufacturing, can you just provide some color around how we should expect the mix shift from 90 towards 65 to evolve over the next three to four quarters?

I guess, sure.

So as I said earlier, our -- okay, our strategy of migrating our -- our process migration is in the 90 and 65-nanometers initially to consolidate the design activities into -- into designing all the IPs that are need, specific -- more importantly the analog IP so that the same designs can be used both 90-nanometers and 65-nanometers.

So we have this unique strategy and we didn't want to talk about this several years ago because this is one of the key strategy that we put in place so that we could -- so that we could jump into a 90-nanometer quickly as well as not falling behind and -- when the 65-nanometer becomes more mature.

(inaudible) 65-nanometer would get -- process get mature a little bit sooner than the industry expected, but luckily we had placed this strategy early on so we would not get caught in a surprise by the early maturity of 65-nanometers.

So what we have done is basically -- for chips, they are not that limited, it will -- we will move to 65-nanometers.

For chips, they are (pat) limited specifically for like majority of the products that we built in the [RH], they are basically pat limited at 90-nanometers, so if we move to 65-nanometer we are not going to be able to save any costs to date.

But as we implement (inaudible) technology, which is a lot more complicated, those can be used -- those can be implemented in 65-nanometer to leverage the (inaudible) shrinking in the logic side.

So we actually feel very comfortable now as we have -- as we can optimize our solutions either in 90-nanometer to 65-nanometer, dependings on the markets there we are targeting.

And can you quantify what percent of revenues might ship on 65, either exiting this year or at some other milestone?

Surprisingly, the majority of products that we are shipping are still products that were built like three years ago.

Some of these higher -- highly-integrate Wi-Fi -- embedded Wi-Fi chips that we built more than two years ago in 90-nanometer are just only starting to ramp as we speak, so -- but you will not -- you will -- the percentage of the 90-nanometers -- or 65-nanometers actually is small percentage this year, but sometime next year, it would be significantly a lot more.

Yes, the design cycles in a lot of our markets are up to 18 months, so now it's getting the silicon into the customers hands, but the revenue will start a little say -- into next year.

Thanks very much, guys.

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

Please go ahead.

Hey, guys.

Could you let us know if you're shipping into any large hard disk controller customers, any new ones, and if not, if that could be a factor for you in the second half of the year?

On the -- on the enterprise server drives, we do expect over time to continue to gain content, but we don't specifically talk about our customers and there's only really three customers in the enterprise side, so it's a difficult position to speak.

Okay, and then over on the gigabit ethernet side, your chief competitor there has indicated that they're likely to lose share.

Is that share that you could pick up, or is that share that Intel would have independent of you?

I didn't hear that.

What was the question?

This is on the gigabit client side.

Okay.

Yes, on gigabit client, we continue to have a very strong relationship with Intel and we also have a lot of success with our Yukon products into the PC OEMs as well, so we think we're holding or gaining share in that market.

But keep in mind the market adoption of gigabit is largely run course in the client market, so that market in itself is not really a growth market for us.

I think we -- in terms of -- probably you're talking about the revenue?

Right, right.

The number of units probably we'll gain market -- in terms of unit probably gain market share.

Right.

Okay.

Thank you.

Your next question comes from the line of Chris Caso with Friedman, Billings and Ramsey.

Please proceed.

Hi, thank you.

Guys, I wonder if you could clarify -- given that you haven't seen seasonality -- I guess what we consider typical seasonality in the storage market for a while, what do you guys consider the typical seasonality in the storage market?

Is it -- for the second quarter, is that in line with what we kind of think about PC units down sort of low single digits sequentially?

Typically for the hard drive market, the Q1 has the bigger drop.

It's going to be down 7% to 10% historically and Q2 would be down maybe 2% to 5% historically and then you see the back half of the year pickup.

The past two years have been a little more muted, as you've seen DVRs and gaming and handhelds, the video iPODs and these types of devices.

The [DOP] hard drives offset the normal seasonality, but this year you're seeing it be more typical.

Okay, and then that down 2% to 5% then would be a fair assessment of what you guys are expecting for this upcoming quarter for you?

For the industry, yes.

For us, we have a mix.

We're across the enterprise, the laptop and the desktop.

The enterprise market is actually --doesn't exhibit those types of seasonal trends and it's actually reasonably healthy in the first half of the year.

Okay, that's very helpful.

Just as a follow-on, I know you guys are qualifying some foundry product in your handset business to augment some of the capacity constraints that you were facing from Intel.

Could you give us an update of just the progress of that in terms of manufacturing and in terms of the qualification?

Do you expect to get some revenue in handsets outside of the products that Intel will ship to you this year?

Yes, we are -- we have seen sample in-house, so very, very promising.

Either we have shipped samples to customers or we are about to ship the samples to customers, I'm not so sure, but we are on -- oh, I know, yes -- the progress so far is very, very promising.

This we're talking about existing products.

They were design and manufactured at the Intel lab, now moving to the foundry.

So that's very, very promising.

In terms of new designs, the new designs, as I said, they all 100% from the ground up using the foundry process, so we'll be taking out quite a few products this year in the 65-nanometers at the foundry.

Okay, and just as a clarification, the products that are coming to the foundries that are, I guess, copies of the existing Intel designs, will that require a full qualification or will that be somewhat expedited on the part of customers?

Oh, I see.

Okay.

Yes, so the product actually is exact identical [pin-ups] --exact identical logic functionalities, so we didn't even try to save -- try to optimize the dye size because we can maybe improve the (inaudible), so we just purely simply porting the process so that the qualification from the customer is with zero effort, basically it's qualifying the fab instead of qualifying the product.

So we have already done phone calls -- even three or four months ago -- in-house in our lab, so we are very confident that qualifications should be very, very straightforward from our customers.

Okay, great.

Without making a change in the softwares.

Okay, great.

Thank you.

Your next question comes from the line of David Wu with Global Crown Capital.

Please proceed.

Yes, good afternoon.

Sehat, can you just maybe answer two questions?

The first one is I didn't understand whether the HSDPA base band and the application processor that you were sampling, are they two dyes on one chip or are they integrated at this point already?

That's the first one.

The second one is regarding application processes, when you go to the customers and using the XScale, which is I guess a superset of the ARM chip, do you run into issues with it's not a standard ARM and the ARM sevens, ARM eights and nines -- God knows how many ARMs there are that have come out that's sort of a standard plain vanilla ARM -- is that an issue, and what do you think about those Intel effort to get back into the smartphone business through a low-power X86?

Okay, so I think I got the three questions there okay.

So the first one -- what was the first one again?

I'm the shot man over here.

Is it a Single Chip, the --

All right, so that's a -- okay.

It's -- the answer to that's very clear.

It is a Single Chip device, one dye consisting of a stand alone application processor with integrated HSDPA edge, full -- basically full 2G, 2.5G, 3G modem in a single piece of silicon.

So it's not a Two-Chip solution.

A Two-Chip solution, we already have, actually.

We have been shipping a Two-Chip solution for quite a while already, but this is the first time we have shipped very high performance application processor together with HSDPA functionality.

I see.

So that's currently sampling?

That's correct.

Currently sampling, making phone calls, in IOT, progressing very, very well.

And we will expect some customers to be shipping volumes before the end of the year.

In the One Chip?

In One Chip solution.

Oh, wonderful.

Yes.

How about versus the standard vanilla ARM application processes and what do you think about that Intel low-power X 86?

Okay.

So a smartphone?

The XScale processor is, is an internally developed processor architecture that utilizes the ARM instruction set, just like the Ferocian processor that we developed at Marvell originally in the last five years.

Also it's a processor architecture for the family of processor architecture that utilized the ARM instruction sets.

So in terms of the instructions, they are fully compatible with the standard ARM instruction sets.

XScale, however, incorporates enhancement over the standard ARM processor, namely in the areas of video signal processing -- image processing through the adoptions of the wireless MMX instructions that Intel originally developed for the PC desktop.

In fact, if you look at the instruction sets for the -- for the MMX of the desktop versus the XScale wireless MM XScale, very, very close, and that's the reason why that it's a lot easier for the customers to port the video signal processing algorithms that people have developed in the PC space into the XScale platform.

So that provides our customer with improved performance at the same megahertz.

Now, on top of that, XScale is designed from the ground up to be -- to be higher frequency to operate that higher top frequencies as well as is the -- today is the only processor -- processor out there that have advanced power management capabilities.

So be able to -- be able to sleep -- I mean to have very low standby power, at the same time be able to run at higher top frequencies when needed.

So if you look at the RIM example -- example of the RIM smartphone, you open up the battery and when it compared to -- the size of the battery compared to the size of the battery from competitors that used -- other people that use competitors application processors, you will notice that the battery is about -- typically it's about half the size of competitor solution.

At the same time, the standby power is like many, many times longer than the competitor solution.

So -- so the main difference is really between XScale and ARM -- between XScale of Ferocians and ARM processor, really just the implementation, how we implement the architecture of the processor.

The instructions -- whatever runs on ARM processors, whatever codes that run on ARM processor will run on -- both on XScale and Ferocian, so we just provide them with better processor.

In terms of -- what was the other one?

The -- Intel's talking about coming out with this Silverthorne, which I guess is the ultra mobile PC smartphone -- smartphone application that supposedly is going to run Windows in a -- full scale as opposed to somewhat of a compromised Windows environment right now on ARM processors?

We're obviously aware of that activity, but before we acquired the -- I mean, acquired the XScale business from Intel, so we - they were not hiding those, the -- their wish to focus on the IA architecture across the board.

So the way we look at it, the market's quite different.

The XScale class of processors targeted for solely ultra low power application versus the IA targets more for application that will require software compatibility to the PC.

If you do not meet software compatibility with the PC, you do not want to tie yourself to a fixed architecture.

In the RIS architecture, inherently the RIS architecture have power advantage compared to SIS architecture just because RIS architecture were designed a lot later than the SIS architecture, as well as the RIS architecture were designed from the ground up, not worrying about network compatibility with all instruction sets that tends to be not efficient.

If you look at RIS arch -- I can go on and on but I'll give you an example.

With RIS architecture typically the processors are designed with larger number of registers in the register file, versus in the SIS architecture you typically have a limited number of registers and as a result, the efficiency -- the mips per megahertz for a RIS architecture typically is much higher for a given number of gates compared to a SIS architecture.

You can always make the SIS architecture to be equal performance as RIS architecture, but typically requires about 3X to 4 X the number of gates.

So if you have the same smart number of engineers working on RIS and SIS, if the -- if the SIS guys can develop processor to run at X megawatt, then the RIS guy will be able to get a quarter of that.

So that's kind of range that.

The fundamental range that you will see, the difference seem to be the -- within the SIS and the RIS architecture.

And obviously we are focusing on the -- on the cell phone, a truly handheld portable applications.

Thank you.

And this is all the time we for questions today.

I would now like to turn the call back over to Dr.

Sutardja for closing remarks.

Thank you, Tammy.

This completes our Q1 fiscal year 2008 conference call.

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

Thank you.

Thanks.

Thank you for attending today's conference.

This concludes the presentation.

You may now disconnect, and have a great day.