邁威爾科技 (MRVL) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fiscal first quarter 2010 Marvell Technology Group earnings conference call.

I'll be your coordinator for today's conference.

At this time, all participants are in a listen-only mode and we will conduct a question-and-answer session at the end of the conference.

As a reminder, this conference is being recorded for replay purposes.

And now I'd like to turn the call over to your host for today's conference, Mr.

Jeff Palmer, senior director of investor relations.

You may proceed, sir.

Thank you, Stacy, and good afternoon, everyone.

Welcome to the Marvell Technology Group fiscal quarter 2010 earnings call.

I'm Jeff Palmer, Marvell's senior director of investor relations, and with me on the call today is Dr.

Sehat Sutardja, Marvell's Chairman, President and CEO, and Clyde Hosein, Marvell's CFO and interim Chief Operating Officer.

All of us will be available during the Q&A portion of the call today.

If you've not obtained a copy of our current press release it can be found at our Company website under the investor relations section at www.marvell.com.

Additionally this call is being recorded and will be available for replay from our corporate website.

Before we begin today we would like to remind all participants that this call will include forward-looking statements that involve risks and uncertainties that could cause Marvell's results to differ materially from management's current expectations, including statements regarding our outlook and response to the current economic environment; industry demand; our expectations about product sales and general market trends; our expectations about revenues; non-GAAP gross margins; non-GAAP operating expenses; free cash flow; and GAAP and non-GAAP earnings per share during the second quarter of fiscal 2010.

To fully understand the risks and uncertainties that may cause to differ from our outlook please refer to Marvell's latest annual report on Form 10-K and subsequent SEC filings.

Please be reminded that Marvell undertakes no obligation to revise or update publicly any forward-looking statements.

During our call today we will also make references to certain non-GAAP financial measures, which excludes stock-based compensation expense, as well as charges related to acquisitions, restructuring, gains and other charges that are driven primarily by discreet events that management does not consider to be directly related to Marvell's core ongoing operating performance.

Marvell management believes these non-GAAP metrics are useful to many investors as they are consistent with some of the metrics utilized internally to manage the business.

While Marvell uses non-GAAP financial measures as a tool to enhance its understanding of certain aspects of its financial performance, Marvell does not consider these measures to be a substitute for or superior to the information provided by GAAP financial measures.

With respect to historic information, most directly comparable GAAP information and a reconciliation between the non-GAAP and GAAP figures is provided on our physical first quarter 2010 earnings press release, which has been furnished to the SEC on Form 8-K, and is available on Marvell's website at the investor relations section.

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

Sutardja.

Thanks, Jeff, and good afternoon, everyone.

Today we reported fiscal first quarter of 2010 revenues of $521 million, reflecting a 2% sequential increase, at the high end of our guidance provided in our last earning calls on March the 5th.

We are encouraged by the sequential increase in revenue and believe the worst of the downturn may be behind us, as our near-term order patterns are improving.

However, as with many others in our industry, we continue to be cautious as we operate within an uncertain demand environment.

As investors now observe, the semiconductor industry began under shipping and market consumption beginning in the second half of last year.

And according to the Semiconductor Industry Association the overall semiconductor industry declined about 40% from peak to trough levels in the last year.

Clearly, while a market demand was very weak it was not down by that much.

We believe the supply chain overreacted to the onset of economic environment.

Consequently, in our view, the demand improvement we saw in Q1 reflected the rebalancing of inventory levels throughout the supply chain, with OEMs, contract manufacturers and distributors rebuilding inventories to levels which better reflect actual end market consumption.

The real question on everyone's mind by now is where does the industry go from here?

We believe the industry demand will likely fluctuate over the next several quarters as the supply chain searches for the appropriate equilibrium point between supply and demand, and this -- and I think this is a part of a normal recovery process.

As we discussed last quarter, the course of action we choose to follow in these uncertain times is to focus on the areas of our business we can clearly control and influence.

In our view, the long-term winners as the economy recovers will be those companies that continue to invest during the downturn and those that can focus on costs and expense management and improved product design efficiency.

Furthermore, we believe this course will ultimately lead to a disproportionate level of design wins over competitors.

In our view Marvell is uniquely positioned to do this and the results over the next few quarters should bear this out.

Our results within the first quarter reflect the focus as we deliver solid financial performance in the areas of profitability and cash flow generation even in this past period.

During our first quarter, on a non-GAAP basis, we reported gross margin of 51.6% while continuing to keep discretionary operating expenses under tight control and delivered about [$132] million dollars in free cash flow, or the equivalent of 25% free cash flow margin.

These are excellent results, which we believe clearly demonstrate our efforts to achieve best-in-class financial performance.

I would now like to review the performance of our various product lines.

The sale of our hard drive SOC products grew just over 14% on a sequential basis, contributing about half of our total revenues.

We anticipate the sale of products through the hard drive customers should improve sequentially by low single digits during our second fiscal quarter.

We believe we exited calendar 2008 -- that is last year -- with a greater than 50% unit share of the hard drive SOC market.

We believe our overall market share on a unit basis will continue to expand in the future as we begin shipping devices to new customer design wins in calendar 2010.

In our view our consistent share gains in the storage space are a direct result of our relentless focus on innovations.

We are currently sampling our fourth generation LDDC rechannel technology, which provides improved SNR, contributes to improved capacity and finished and product yields for our hard drive customers.

We continue to focus on improving the data rate and also lowering the power dissipation.

Additionally, our current and future customers are already committed to use the technology to achieve next generation drive capacity points.

This is an area of clear competitive differentiations and leadership for Marvell.

Turning to the performance of our embedded wireless and mobile products, revenues were about 20% of the total and were down about 15% sequentially due to inventory and product [partition] management by our customers.

We believe this inventory and product partitions are behind us and we expect revenues in this area grow by more than 25% in our second fiscal quarter.

We continue to see solid design wins traction within embedded wireless for gaming platforms, digital cameras, printers and enterprise access platforms.

In the handset market there has been a lot of commentary about design win momentum for multi-radio combo devices, but the fact is many handset manufacturers have yet to make the transition.

We continue to count several tier one handset manufacturers as customers of our industry-leading 802.11 devices.

We do expect the industry will make the transition to WiFi and bluetooth combo devices, especially for the high-end smartphones, over the next several years and we expect to be a major player in this transition.

We also realize many of the low-end phones will not require WiFi for the next several years.

These low-end phones will continue to rely solely on bluetooth.

We are currently sampling our second generation bluetooth and FM radio combo device, which is optimized for this very large volume but low-end market.

In our opinion these 55-nanometer devices have the lowest power, the industry's most sensitive FM receiver and the smallest phone factor.

In our mobile processor products, looking out six to 12 months, we believe the significant investments we have made will begin to pay off.

We have many new design wins, both within the existing and new customer base.

These wins are not only in the smartphone market, but also in many other consumer markets, such as next generation digital picture frames, digital e-books, on board automotive display systems, mobile gaming platforms and many other new products.

Over the last several years we have vastly broadened the market reach of our application and communication processor product lines.

We have devices now in 65-nanometer and 55-nanometers which address the markets for low power and low cost, also devices that are specifically targeted for the very high performance with extreme 3D graphics capability, and also products with advanced embedded modem technology.

The situation we face in the cellular business highlights how dramatically the chip business has evolved into a system business with a total solution consisting of both silicone and software.

The complexity of the smartphones requires the silicone suppliers to have extensive software capability to enable new products to be brought to market in a reasonable amount of time.

This is a key reason we have become so successful in the hard drive market.

We know how to deliver a complete silicone and software solution to our customers.

The days of just designing a new chip and expecting customers to adopt it quickly without the full software support are behind us.

As one of the very few players in the cellular market to have the capability to develop both the silicone and the complex software we expect to be a long-term leader in this very large market.

An lastly, turning to our networking products, our overall sales increased approximately 5% in aggregate on a sequential basis and represents a greater than 20% of total sales.

We believe the sale of our networking products will grow in the high single-digit range during our fiscal second quarter.

We are very encouraged by the results we are experiencing with our enterprise products, as we have strategically focused on the highest performance switching requirements.

We are now seeing the fruits of design win activity that we began several years ago.

We have a deep pipeline of new high-end switching and network CPU designs with many network OEMs, which should go into production over the next 12 to 18 months.

We are also fortunate to see many of our customers gaining positive traction with their new products which -- many of which we are designing, too, providing a positive tail wind in this tough economic environment for IT equipment spending.

Our ongoing success in this market is a result of developing one of the most comprehensive portfolios of networking IT.

This includes multi core, gigabits-class RM CPUs, leading (inaudible) capability and advanced security-enabled, physical-layered devices, (inaudible).

In summary, even with the challenging economic environment we are operating within I believe Marvell continues to expand its share in existing and many new targets.

I am proud of our performance and our employees in this challenging period and optimistic about the future of Marvell.

Now I would like to turn the call over to Clyde to review our financial results for the first quarter and to provide our current outlook for the second quarter of fiscal 2010.

Clyde?

Thank you, Sehat, and good afternoon, everyone.

As Sehat mentioned, fiscal Q1 revenues came in at about $521 million, representing a 2% sequential increase over fiscal Q4 2009 and a reduction of 35% from the same period a year ago.

This result was at a higher end of the revenue range we provided during our last earnings call on March 5th, while the year-over-year decline is consistent with the trends the overall industry has been facing.

Our non-GAAP gross margin for the first quarter was 51.6%, an increase of about 30 basis points from the fourth quarter and down about 40 basis points from the same period a year ago.

This was slightly higher than the mid-point of our prior projected range of 51.5%, plus or minus 50 basis points.

The sequential improvement in our gross margin was primarily due to improvement in product mix and cost reductions we initiated last year.

Our overall operating expenses for the first quarter on a non-GAAP basis were $235 million, which was in line with our previously-projected range of $230 million to $240 million.

R&D expenses for the quarter were $179 million, essentially flat sequentially and down 14% from the same period a year ago.

SG&A expenses for the quarter were approximately $56 million, down 1% sequentially and an increase of about 20% from the same period a year ago.

However, if you recall, our SG&A expenses in the same period a year ago included a net benefit of approximately $14.5 million due to a settlement with the SEC.

combined with a payment received from our directors' and officers' insurance policy.

If you adjust for this, our SG&A expenses improved by 8% on a year-over-year basis.

The improvement in our operating expenses were primarily due to tighter management expense -- tighter expense management as we adjust to the current economic environment and drive to our long-term expense and profit marks.

This resulted in a non-GAAP operating margin of approximately 7%, up from the approximately 6% reported in the prior quarter and down from the 20% reported in the same period a year ago.

Net interest expense and other income essentially balance out each other during the quarter.

This was a slight improvement sequentially and an improvement of approximately $4 million on a year-on-year basis.

Tax expense was approximately $2 million during the first quarter.

During the prior quarter we had a tax benefit of about $5 million as a result of a favorable tax ruling in one of our foreign jurisdictions.

Our non-GAAP net income for the fiscal first quarter was $32 million, or $0.05 per diluted share, essentially flat with the last quarter, as the improvement in operating profit was offset by higher relative taxes.

During the same period a year ago we earned $150 million, or $0.24 per share.

The shares used to compute diluted non-GAAP net income per share during the first quarter were approximately 637 million, up from 629 million shares in the prior quarter and higher than the 624 million shares reported in the year-ago period.

Changes in diluted share count are primarily due to the variations in average and end in share traded prices in the reporting periods reflected in the treasury method of computing diluted share count.

Let me now summarize our quarterly results on a GAAP basis.

We experienced a GAAP net loss of approximately $39 million, or $0.06 per share in the first quarter, as compared to a loss of $0.11 per share we reported in our fourth quarter of fiscal 2009 and lower than a profit of $0.11 per share we recorded in the same period a year ago.

The sequential improvement in our GAAP earnings was principally the result of increased revenues, improved gross margin and lower stock option expenses as compared to a result in the fiscal fourth quarter of 2009.

The difference between our GAAP and non-GAAP results during the first quarter of fiscal 2010 was primarily due to stock-based compensation expense of approximately $32 million, or $0.05 per diluted share.

Amortization of intangibles represented an approximately $30 million, or $0.05 per diluted share, and restructure and related expenses represent an approximately $9 million, or $0.01 per diluted share.

Our stock-based compensation during the quarter was lower by $13 million, both sequentially and on a year-over-year basis.

The decrease in stock-based compensation expense is primarily related to the stock option exchange program we implemented in fiscal Q4 2009 on option grants that fully vested at the end of last fiscal year.

As a result we expect ongoing option expenses to be in the range of $30 million to $35 million per quarter over the remained fiscal -- the remainder of fiscal 2010 as compared to $40 million to $45 million per quarter in the last year, representing a 25% to 30% reduction year over year.

Now I'd like to review our balance sheet as of the end of the fiscal first quarter of 2010.

Cash, cash equivalents and short-term investments were approximately $1.1 billion, up approximately $132 million sequentially and up $310 million from the same period a year ago.

Cash flow from operations for the first quarter was approximately $145 million as compared to $109 million reported in the fourth quarter and up approximately $14 million from the same period a year ago, even under lower revenue levels.

Free cash flow for Q1 was $132 million, representing a 25% free cash flow margin, an improvement of nearly 40% sequentially from the 18%, or $93 million in the fourth quarter of fiscal 2009 and about a 2X improvement from the 12% free cash flow margin, or about $100 million in free cash flow in the year-ago period.

In the last four consecutive quarters we generated an impressive $634 million of free cash flow, or approximately 24% of revenues.

Accounts receivables were $285 million, up about $63 million sequentially and down approximately $85 million from the year-ago period.

Days of sales outstanding were 50 days, an increase of ten days from the prior quarter and eight days from the same period a year ago.

The increase in AR sequentially was due primarily to revenue skew as we saw most of the increase in our revenue in the latter part of the last quarter.

Net inventories at the end of the first quarter improved dramatically to $204 million from the $311 million reported in the fourth quarter, a 34% sequential decline due to improvement in order patterns later in the quarter.

Our net inventories are the lowest levels in three years.

Net inventories declined $166 million, or 45% on a year-on-year basis.

Days of inventory were 91 days, down sequentially from the 117 days reported in the previous quarter and down about two days from the year-ago period.

We expect to increase our absolute net inventories in the second quarter due to improved order patterns, better confidence in the end markets, as well as to improve our customer serviceability.

Accounts payable was $167 million, up $28 million sequentially, as we continued to extend payments to suppliers to improve our working capital management.

This was essentially flat on a year-on-year basis.

In summary, Marvell is one of the first semiconductor companies to recognize the unprecedented downturn our industry was to experience, beginning in the second half of calendar 2008.

We took early and deliberate actions to quickly lower our operating expenses and improved our working capital to better weather the revenue decline.

The results of these actions are reflected in the financial performance reported for our most-recent quarter.

As Sehat mentioned, we continue to operate with a very cautious outlook.

While we believe the worst of the downturn may be behind us, we will continue to take actions to control our cost and expense structure while generating good cash flows.

Now I'd like to provide an update on our current projections for the second fiscal quarter of 2010.

We currently project second quarter revenues in the range of $540 million to $580 million, or a sequential increase of 4% to 11%.

At the mid-point of this range, this represents an increase of about 7.5% sequentially.

We currently project non-GAAP gross margin in a range of 52.2%, plus or minus 50 basis points, at a mid-point an improvement of approximately 65 basis points from the previous quarter.

We currently anticipate non-GAAP operating expenses to be approximately $225 million, plus or minus $5 million.

At the mid-point of our guidance, this is an improvement of about $10 million, or 4% from the last quarter, and 19% improvement from the same period a year ago.

As you recall, we announced some expense targets on our earnings call last March.

Our forecast of $225 million for this coming quarter -- our second fiscal quarter -- represents an achievement towards our targeted expenses six months ahead of that schedule.

Sehat and I would like to thank the Marvell employees and management team for its excellent expense management and encourage them to continue to improve.

At the mid-point of our forecast we currently anticipate R&D expenses to be about $175 million and SG&A expenses of approximately $50 million.

While we continue to implement our previously-announced expense reductions, we expect to see those reductions offset by expense increases due to new product introductions, especially as we focus on more advanced process technologies.

This fluctuation will likely continue in the future.

The combination of interest expense and other income together should net to approximately zero, as foreign exchange fluctuations offset earned interest in our cash balance.

The effective non-GAAP tax expense should be approximately $3 million to $5 million, with diluted share count of approximately 638 million shares.

We currently project non-GAAP EPS to be in the range of $0.07 to $0.13 profit per share.

On the balance sheet, we currently expect to generate less than $50 million in free cash flow during the quarter, primarily as we grow inventories to reflect the improved demand environment.

The cash balance should be about $1.1 billion, excluding any special terms or M&A activity.

We currently expect our GAAP EPS to be lower than our non-GAAP EPS by about $0.10 per share, plus or minus $0.01.

About $0.05 of this difference is related to amortization for intangibles and $0.05 in stock-based compensation expenses.

Now I'd like to turn the call over to the operator to begin the Q&A portion of the call.

Stacy?

Thank you.

(Operator Instructions).

Your first question comes from the line of James Schneider with Goldman Sachs.

Please proceed.

Good afternoon and thanks for taking my question.

I guess to start off, could we talk a little bit about where you are in terms of shipping end consumption.

You talked about the overreaction in the supply chain to the negative side, do you think you're back to shipping to end consumption levels at this point and are there any areas -- product areas where you're still under shipping end consumption?

Yes, okay.

So I think the -- in terms of the end consumptions, we do not have the right visibility directly because we -- to the end consumers, but all of our customers are pushing us to -- for rebalancing the inventory, so that's clear.

So that's why we also cautious about whether the improvement in the economy is real, or it is rocky.

or it is semi rocky.

or it is like -- we don't really know, but we optimistic that many of our new products, on the other hand, are still being -- or built into some of their new products, so overall we are optimistic.

Jim, do you have a follow up?

Yes.

Just on the cellular business, could you give us a sense of what revenue run rate you need to be at to reach operating break-even for that business and how far away that might be?

Yes.

I don't think we get those numbers, but I do expect to get -- you should expect that in every business that we do, okay, we will -- new business that we do we will eventually reach profitability, but -- because of -- the cell phone is a huge investment that point probably is a little bit further ahead in front of us, so even if we wanted to give you the number, I don't -- we don't have those numbers anyway.

It will be sometime, could be another couple of years before that happens.

Great.

Thanks very much.

Thank you.

Operator, we'll take the next call, please.

Your next question comes from the line of Randy Abrams with Credit Suisse.

Please proceed.

Yes, thank you.

I wanted to see if you can provide an update just on timing and initial shipments and then the inflection point for some of the new hard drive projects that you have into Seagate and Hitachi?

What was the question?

The question was timing on shipment to Seagate and Hitachi on new hard drive opportunities.

You want --

Yes, I'll take that.

You have better insight on that than I do?

I think we've said it probably rounds in calendar 2010 and that's the best visibility we have right now.

Okay.

And if I could ask, last year you had a bit of an early read into deceleration where back to school was okay but then going into the holidays things decelerated.

It looks like your inv -- you're building inventory a bit in July and I guess some of that's to support current quarter increase, but to what extent are some of the early order indications in inventory levels suggesting continued improvement into the back half of the year, or do you see this a one-quarter snap back?

Do you want to answer that?

Yes.

So there's two questions in there.

One is on inventory.

We are building some.

We think, at least in some of our areas, we have better profile.

The demand pattern picked up quite a bit in the last month of the last quarter and probably will continue for most of this quarter.

We are seeing in some areas spot shortages, so we need to improve on that.

As far as beyond this quarter -- so we feel very good about this quarter and that's clearly indicated in our forecast.

The -- we only provide forecasts of one quarter, so we are -- as Sehat mentioned, we're very cautious about the second half.

I think our opinion is back to school is probable, I think that will happen.

We've seen some of that demand here.

But I don't think anyone -- certainly on this planet -- could say we are totally out of the economic downturn.

I think we've seen -- we certainly believe we've seen the bottom and we think there's improvement, so I would caution people about -- if you do beyond back to school to the typical Christmas season I think we have very little visibility into that and I'd caution people not to get too carried away with the near-term growth -- to the strong growth we are seeing.

I think for Marvel we continue to manage our profitability and cash flow and Sehat mentioned, the things that we can control is design wins and some of the revenue ramps we see in the current quarter is some new design wins, as you can see from Sehat's statements, and that's where I think we need to focus rather than depend on end markets.

I think end markets, strong customer relationships, the strength of our products, I think we'll continue to pick that up so we don't worry too much about that.

I think we're protecting our downside and our profitability and cash flow reflects that, our expense management and gross margin management reflects that, but the visibility part of it can give you a lot.

I would encourage people to be cautious.

Okay.

If I can fit in one last question, I think you give some guidance for next quarter on embedded wireless and enterprise, could you clarify again the storage and then also for cellular?

I don't know if I caught it, but cellular performance this quarter and then your outlook for the cellular business for next quarter?

Yes.

Let me see.

Storage, I think --

Storage, I think we talked about --

Low single digits.

-- low single digits for the second fiscal quarter.

It looks like the wireless and mobility for next quarter, we're talking about more than 25% growth.

And for the enterprise networking products, I think we're projecting high single-digits growth for the second quarter.

Okay.

Is there a difference between in that wireless mobility the embedded wireless versus the cellular-based [in-application] processor?

It is combination of those.

All right.

Fair enough.

Thank you.

All right.

Operator, we'll take the next call, please.

Your next question comes from the line of Craig Berger with FBR Capital Markets.

Please proceed.

Sure.

Hey, guys, thanks for taking my questions.

It seems like you're doing a great job in the hard drive side, but we've seen a notable -- noticeable lack of new product drivers over the last year or two.

You said some of the growth in Q2 is from new products.

What are the new products, where are you having the most traction and what might be the revenue contribution on the new products say in calendar 2010?

Okay.

So if you look at the fiscal '10, if you look storage, we continue -- we don't actually announce new products in storage, but we do have a lot of products there -- a lot of new products, whether it is in the areas like SOCs or in the SSD controllers or in the rate controllers, [brahman] chips, [rafeman] chips and so on, so there are a lot of new products being introduced all the time.

We also introduce a lot of new products to obsolete our existing products so that we can allow our customers to be -- to stay ahead in the leading edge to make sure that our customers will always continue to be at the forefront of the technology development.

Now, in the wireless, the same thing.

In the embedded wireless, we also are moving rapidly to many of products in 65-nanometers and 55-nanometers and -- well, actually, I have to say it, across the board we are doing that.

So -- yes.

If you notice, our -- we also mentioned that -- I think Clyde also mentioned that our expenses, a significant part of our expenses actually are as a result of [tape-out] costs.

The [mass] costs of doing 65-nanometers is horrendous, but this is an area that we have to invest, so that reflects the fact that we have a lot of tape-outs on new products.

So -- what else do you want to add?

Yes, I think those are the areas.

I think we're -- around revenues, but I think Sehat's point on the hard drive, which I think is a question, is we don't do like maybe some of our customers announce products.

I think our performance in that business is very well.

Sehat mentioned we have 50% share of that business and that's before we ramp up two of the most significant customers, which we think should start in 2010.

Oh (inaudible) there'll be more on enterprise classes of SOCs.

As a follow up for Clyde, can you tell us what the driver is between -- behind the improved gross margin?

And also can you guys tell us whether you expect any new base band customers within the next year?

Thank you.

I'll take the gross margin one.

Yes, I'll take the second one.

The -- I think -- Craig, I think either you or somebody asked earlier, we were early on to identify areas to reduce.

We took -- the management team did a very good job of improving cost and expense.

A part of that is that improvement in efficiency in Marvell, part of it is mix, so I think efficiency and mix -- probably more on the efficiency side -- is where you see 65 basis points at the mid-point of our guidance and growth.

So I think this is basic fundamental blocking and tackling from employees and management.

Sehat, you want to take the second one?

Yes.

So I already alluded to what I -- okay.

On the [operations] processors and cell phone and you're asking the base band, so the base band we call it, we don't build stand-alone base bands today, but we could, but we will -- to the point, today we -- our solution tends to be -- our solution are in the base bands we call it communication processors, which is integrations of highly-integrated solution of base band plus application processors.

So in terms of -- historically when we acquired this business from Intel the focus was only on the very high-end smartphone markets.

But as we took the business internally at Marvell my focus was -- obviously we talked this numerous time is to move to the transition of the manufacturing from Intel manufacturing facilities to the foundry facilities, that was the first space.

And then we quickly also redesigned the new products in the standard TSMC -- I mean the foundries advanced process technology, 65-nanometers and 55-nanometers, to address the higher volumes, broader markets of the communication processor.

So as I said earlier, we have products in -- now we have products in -- okay, at 65-nanometers and 55-nanometers.

A lot of these products are being designed in our existing customers, as well as in new customer base, and some of these products I also mentioned are just targeting applications for the lower-cost and higher- volume markets.

In some of these applications some of the products are targeted for very high-end smartphones and some of them are targeted for application that requires cell phone functionality, as well as gaming capabilities.

That's why we talk about having FM 3D function -- 3D graphics capability.

So we are move -- we have progressed significantly over the last several years into moving our products to address the broader markets of the cell phones.

So the (inaudible) -- the expansion in the customer base is very expensive to date and we -- that's why we also say in our statement that six to 12 months from now I think that we will start seeing the fruits of our investment in our activity in this area as our future customers and our existing customer base broaden their product portfolios they will use our chips -- chip solutions -- wireless chip solutions.

Thanks, Craig.

Operator, we'll take the next question, please.

Your next question comes from the line of Shawn Webster with JPMorgan.

Please proceed.

Yes, thank you.

On the inventory front you said that there were some areas that seemed lean and there were some areas that were normal.

Can you high -- or give us your perspective on which end markets or product segments you are experiencing lean inventory conditions in the channel and when you expect them to be normal?

And then I have a couple of follow ups.

So I think it's best -- in end markets people read too much into it.

The spot shortages I referred to, Shawn, were mostly related to new product ramps and I think they are ramping faster than probably we thought a few months ago.

It's probably well on the consumer side of it, but I think the more appropriate thing for investors to take away is our new product ramps are doing very, very well.

I think the -- you had a follow up, you said.

Well, I guess just overall, do you consider your inventories out there at your customers to be lean or normal at this point?

As Sehat mentioned, you know, we have limited visibility of our customers' inventory, so I don't think it's appropriate for us to comment --

Okay.

-- on where their inventory is.

And then last quarter you talked about some of your backlog information, is there any of that you could share with us this quarter?

Sure, good question.

At the beginning of the quarter our backlog started off at about low to mid-70s.

Typically in whatever you want to call, in this environment a normal quarter you'd be in the mid-60s, so we're about high single digit, 10% higher than normal.

That would probably point you to the high end of the range of -- assuming the same level of turns, having said that.

So it's very positive, very good momentum going in, but I want to caution people again that we've still got a couple of months to go before our quarter ends -- our quarter ends in July, so we get two more months to go.

Don't want to get too over the top.

Second thing is, a big chunk of our -- more than 40% of our revenue's on a consignment basis, which is not your traditional book-to-bill type of business, so we take that in consideration.

And third is, one of -- the last of those two months is part of the summer dulldrum.

So while we feel really good about going into the quarter, we feel pretty good about it today, as both Sehat and I mentioned, be very cautious about and I'd encourage investors to be cautious and not to be too carried away.

If things change we may come out and update you guys, but that's how -- it started off very good.

I see.

And then for your shipments for this quarter you expect them to be fairly evenly spread over the quarter or are they stronger at the beginning?

Well, they certainly started off strong.

We'll see where it ends up.

That's the part of the cautionary thing we want to be cautious about in the next couple of months, Shawn.

Okay.

Sorry, and then just one last clarifying question.

You said storage, or SOC part of your business was 50% of sales today.

What's your total storage business, including controllers and preamps and everything as a percentage of your total sales?

It's in that range.

Also, it's also important to note that, okay, this is pretty much about the levels that we've been running over the last, I don't know, six, seven, eight years that I know of, many years that I know of, at least as much as I could remember.

At one time I guess storage was 100% of revenue, but that was a long, long time ago and as our revenue's grown it typically ran up -- the rest of the business tends to go up at about the same rate, up and down a few percentage points.

So it's been hovering around the 50% level all these years.

Okay.

Thank you.

Your next question comes from the line of Sukhi Nagesh from Deutsche Bank.

Please proceed.

Thank you.

Clyde, on the inventory side can you give a breakdown of what your inventories were work in progress versus finished goods for the quarter?

To be honest I don't have that offhand, but -- so we have to get back to you, but most of it is in WIP.

It's a mixed bag so I don't look at it in aggregate.

I -- by product lines is where we look at it.

Some of the emergent areas are very lean and most of that is in WIP.

Some of the more mature product, obviously, is more close to the finished goods.

But I couldn't give you an aggregate number, we'll have to get back to you on that.

Okay.

And the free cash flow that you were talking about, what are you forecasting internally for your depreciation and CapEx for this year and how should we look at, on a dollar basis at least, free cash flow for the entire year?

So two things.

The depreciation would be essentially flattish.

Jeff could probably get you the number for this quarter.

And then for the forecast for the full year, nice question, but I think I'll stick to forecasting just one quarter, Sukhi.

We do generate healthy cash flows.

I think this quarter we were 25% of revenues.

I think we should be in the 20%, plus or minus, and whatever your revenues for your full year would be.

I'll follow-up with you offline, Sukhi, on the other question.

Do you have any other follow-up.

Just one last thing, On the printers business you didn't talk about that at all.

Can you give an update of what's happening there?

Yes, our printer business tracks our main customer.

In the first couple of -- few months of this year it's been down consistent with that main customer.

We have seen some improvements lately, though, and so things should look up.

That's our existing base.

The big exciting thing with that customer is we are getting a lot of design wins in ink jet and in other areas and we'll start seeing that ramp the second part of this fiscal year and next year that should start improving nicely.

So right now that business is more reflective of the broader economy, but it should start picking up broadly, In fact it started already, that should continue, track with the economy and then starting later this year and for next year we'll start seeing some ver -- the results of some design wins, some new customers, new technologies and some new products that we have and we feel pretty good about that.

Okay.

Operator, we'll take another call, please.

Your next question comes from the line of Kevin Cassidy with Thomas Weisel Partners.

Please proceed.

Hi.

Thanks for taking my call.

Just wondering about the activity in the solid slate drive controller business.

Can you describe how that's progressing?

Yes.

So we have -- actually, we are progressing quite well, actually, in the solid state controller.

I think maybe it's good for me to recap what we do in solid state controller.

We build solid state disc controls for the enterprise markets, for very high-end applications initially.

These are the devices that requires absolute performance and absolute reliability and this is what we are known for, leveraging our storage SOC controller technology that we built internally over the last, I don't know, seven, eight years or maybe even ten years, so that's how we started.

We have a handful of customers in this area, mainly the enterprise guys.

We also -- over the last year or so, also building a more consumer class SSD controllers, basically removing some of the features that are not needed in those markets, like super (inaudible) performance, so those are the devices being sampled into the market.

And if you want to see some of those devices I think at the [Computechs] in Taiwan you'll see a number of those devices will be demoed at the Computechs.

So again, this is a business where we provide chip software and software -- complete software solutions to allow our customers to be able to go production quickly.

So I think that's -- we'll continue to innovate, okay.

Se have -- as you know, in the storage we have LDPG technology and you shouldn't be surprised that down the road somebody's technology will go into -- also into SSD class of products.

Some of these flash devices are going to be built using 30-nanometers or 20-nanometer process technologies.

The reliability of that chips begin decrease drastically, so they will need more advanced digital signal processing, DSP, technology to overcome the limitation of flash.

But again, we are optimistic that over time more and more of our knowledge, our expertise in this area, okay, will be more important in this business.

Kevin, did you have a follow up?

Yes.

I was just wondering if you thought that revenue from these controllers would be significant by next year, or does it take the NAM flash to have to go down to the smaller geometries before it sees volume?

Yes.

So as I say sometimes in the past -- a few times in the past, okay, I see that the volume of the SSD will only be high as the flash manufacturers go into their more advanced process technology because nobody wants to just have the 8-gigabytes or 16-gigabytes SSDs.

So if people want to have 64-gigabytes, 120-gigabytes SSDs, people need to move on, okay, to the next generation -- not the next maybe, but the next, next generation flash capacity to see the kind of volumes that you're expecting.

So more likely this will grow eventually.

People that are willing to pay more, okay, initially will adopt SSDs.

People that can't afford it will wait until the supply of the flash chips, okay, meet the expectation of the people -- those people that can only afford to pay only a fixed amount of dollars for their budget, so -- and I'm not concerned of that.

I look at it.

It is the natural progress of our business.

The other part, okay, that also I -- actually, I feel good about it, essentially because of the inherent cost increase of the cost -- (inaudible) -- the fact that flash isn't always going to be more expensive, more likely there will be market for flash and HDD in the PC markets, so they will actually increase our (inaudible) and then down the road as the flash technology price becomes low enough, then the SSD technology may even go into the handset market, but I don't see that happening next year or two years from now, maybe longer than that.

Stacy, we'll take one last call today.

Thank you.

Your final question comes from the line of Mark McKechnie with Broadpoint AmTech.

Please proceed.

Great.

Thanks, I appreciate it.

A couple of questions.

The first is this embedded wireless business, that 20% of the total, I've got it, WiFi, printers, mobile ICs, the -- you're guiding it up 25% sequential.

I just wanted to get a sense, how much of that do you think is for the end of the inventory burn and it sounds like you've got some new customers kicking in, but if you took the new customers out would that business still be up pretty nicely sequentially?

You want to take that?

Yes, more -- the big chunk of that, more than 25%, is new customers or new design, new products.

But if you strip that out I would say it's up moderately.

I think, as Sehat mentioned, there was some -- at certain customers some inventory tightening, so I think it'd be up moderately.

Most of it though, to be clear, is in new product ramps at new and existing customers.

Got you.

And then on your hard drive business, it was up pretty nicely sequentially.

I know that was -- there was some of the end of the inventory burn, as well, but did you start bringing on a new enterprise customer there and did that make a difference?

Let me see, I don't have the number for the enterprise, but we do have some of the numbers are starting -- some of the numbers also part of it is the enterprise ramp up, so as we -- and those things are expected to continue to ramp up over the next year or so.

The majority of the volume still is in the desktop and mobile, though.

Got you, okay.

So that enterprise one started ramping up a touch, but there's more to go.

And then the one last one is, you did talk about -- in your opening you talked about numerous design wins, I think, that kick up in the back half of the year.

Would we -- I know you're not giving guidance past, but would you expect some additional new customers or products to make a difference out in October or January?

We're talking about the hard drive?

In general and I think also mobile and wireless specifically.

Oh, okay.

Yes, probably mobile and wireless because it sounds like your hard drive customers don't kick up until '10.

Okay.

All right.

So in terms of the wireless, I think key is that people need to understand that it takes some times for new customers to ramp up to get the devices into the han sets, to get the vertical stacks all tested in the field, so it could be the end of this year.

It could be -- but it also depends on the length of the (inaudible) required by the carriers.

Some of these new customers are also addressing some of the new carriers, so if it happens next year, it is possible.

Got you.

Okay.

Thanks much and good luck.

It's tough out there, but good execution.

Great, thank you.

Thank you, Mark.

This ends our call today.

Thank you, everyone, for your attendance on the call.

We will be attending several investor conferences over the next several weeks.

We hope to see you there and we look forward to speaking to you at the end of our next quarter.

Thank you, very much, for your interest in Marvell.

Bye-bye.

All right, thank you.

We thank you for your participation in today's conference.

This does conclude your presentation.

You may now disconnect and have a great day.