邁威爾科技 (MRVL) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen.

Welcome to the second quarter 2011 Marvell Technology Group Limited earnings conference call.

I'll be your coordinator for today.

(Operator Instructions) After the speakers' remarks there will be a question and answer session.

(Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host, Mr.

Jeff Palmer, Vice President of Investor Relations.

Please proceed, sir.

Thank you, Keisha and good afternoon, everyone.

Welcome to the Marvell Technology Group second quarter of fiscal 2011 earnings call.

With me on the call today is Dr.

Sehat Sutardja, Marvell's Chairman, President and CEO, and Clyde Hosein, Marvell's CFO.

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.

Please be reminded that this call will include forward-looking statements that invoke risks, uncertainties that could cause Marvell's results to differ materially from Management's current expectations.

The risks and uncertainties include statements regarding macroeconomic trends, trends within the PC and HDD end market, our expectations about the sale of new and existing products, the sustainability of a long-term business model, our ability to fund common share repurchases out of current and future cash balances, general market trends and specific statements regarding our financial projections for the third quarter of fiscal 2011.

To fully understand the risks and uncertainties that may cause results to differ from our outlook, please refer to Marvell's latest annual report on Form 10-K and subsequent SEC filings for a detailed description of our business and associated risks.

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

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

Pursuant to Regulation G, Marvell has provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures in our second quarter of fiscal 2011 earnings press release, which has been furnished to the SEC on Form 8-K and is available on Marvell's website in the Investor Relations section at www.marvell.com.

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

Sehat?

Thanks, Jeff, and good afternoon, everyone.

During our fiscal second quarter, we generated revenue of approximately $896 million, a 5% sequential increase and a 40% increase over the same period a year ago.

We delivered non-GAAP earnings per share of $0.40 and generated approximately $292 million in free cash flow.

The quarter was challenging due to a softening macroeconomic environment that impacted demand for PCs, which in turn led to excess inventory build-up in the supply chain.

Marvell was not immune to these effects, but despite these challenges, we delivered excellent results.

We believe this demonstrates the robustness of the Marvell business model, our ability to sustain revenue growth and manage excellent profitability in spite of the challenges experienced in one of the three end markets we serve.

Now, let me provide some color on what transpired during the quarter and beginning with the storage end market.

The sale of products into the storage end market declined approximately 15% sequentially versus our original forecast for revenue to be flat to down a few percentage points.

As most investors may recall, over the last year our industry has been supply constrained and the hard drive industry even more so.

In hindsight, we believe the PC and the hard disk drive supply chain built inventory to address these constraints during what is usually the seasonally slow first and second quarters, ahead of what was expected to be a normal back-to-school build period.

The assumption of a tight supply environment was the basis of our forecast entering the second quarter.

As the quarter progressed, negative macroeconomic events starting in Europe began to affect the end market demand for PCs.

As a result, the supply chain reacted quickly, cutting build plans and tightening on-hand inventory.

Marvell was subjected to these inventory rationalizations and the resulting erosion of the demand on us.

We believe the consumption of the excess inventory is largely behind us now.

For example, since the middle of July, we began to experience improved competent tools at the hard drive product consignment hubs providing evidence to us that the excess inventory has worked through the system.

We think it is important to note the speed by which the supply chain has responded to the challenging market dynamics.

We see this as a positive long-term trend.

We believe the destruction in the hard disk drive supply chain started and ended pretty much within our second fiscal quarter.

While there may be questions on the growth trajectory of the PCs and the HDD hard disk drive going forward, we believe the inventory correction is behind us.

On a positive note, we began production shipments within the quarter and ahead of the announced schedule to a new HDD supplier.

The only remaining HDD supplier we did not serve.

While the volumes are initially modest, the addition of this customer into our roster will help to strengthen our franchise in the HDD SOC market.

Looking to the third quarter, we are anticipating revenue from the storage end market to be essentially flat.

This is well below typical seasonality.

However, it reflects caution and conservatisms given the recent events.

Turning to our performance -- now turning to our performance in the mobile and wireless end market, sales increased over 50% sequentially.

Our combined revenue from the mobile and wireless end market now represents nearly one third of our total revenue, a record level in our history.

This performance is yet another clear example of the investments we have made in the mobility market yielding positive returns.

Looking at the sources of the growth, it was broad base across all our mobile and wireless product lines.

Approximately 15% of the sequential increase was due to the initial production revenue from our ARMADA application processors, primarily as a result of a major customer preparing to launch a new gaming platform.

Over 30% of this sequential increase was due to the sale of several communications processors as one of our key smartphone customers preparing to ramp production of several new handset programs.

And lastly, about 55% of the sequential growth in mobile and wireless revenue was due to our embedded Wi-Fi products.

The main drivers for Wi-Fi product growth was due to new and existing gaming systems combined with the continued product adoptions within the imaging and enterprise access markets.

We currently anticipate the sale of mobile and wireless products to again grow in the third fiscal quarter in range of 15% to 20% sequentially.

Lastly, turning to the networking end market, our sales grew a few percentage points, slightly lower than our original expectations.

The primary drivers of revenue growth were enterprise-class switches, physical layer devices and SOC products which in total grew up -- in total were up over 10% sequentially.

This growth was offset by the sequential declines in the sale of PC clients as the previously mentioned challenges in the PC end market also impacted demand for our Ethernet Controllers.

Looking to our third fiscal quarter, we anticipate revenue growth on the networking market to be essentially flat on a sequential basis.

Turning now to revenue from new products, which we believe is a broad metric on how our ongoing R&D investments translate into customer adoption.

Revenue from new products during the quarter was approximately $220 million, more than a 60% increase sequentially and represented about 25% of our total revenue.

During the second quarter, new product revenue was primarily due to the success of our -- in the mobile and wireless market.

About half of the new product revenue was a result of continued strong demand for our latest 3G communication processors, about a quarter was due to demand for new Wi-Fi products and just under 10% was related to initial shipments of our new ARMADA application processors.

In summary, our second fiscal quarter is also demonstrate Marvell can sustain and deliver significant shareholder value, even when certain end markets we serve experience disruptions.

Looking into our third fiscal quarter, we will continue the transformation of our business towards high growth areas such as mobile and wireless.

We will continue to manage the Company to deliver world class financials and expect to be net share gainers in our historical franchises in both the networking and storage end markets.

Taken together, we anticipate revenue in our third fiscal quarter to grow in a range of approximately 4% to 8% sequentially.

Now, furthermore, based on the confidence we have in our long-term business model to deliver best-in-class results, we announced today a share repurchase program of $500 million.

We believe this is a demonstration of the value creations we anticipate we can continue to deliver to shareholders.

Now, I would like to turn the call over to Clyde to review our financial results for the second quarter and to provide a more detailed outlook for the third quarter of fiscal 2011.

Thank you, Sehat.

Good afternoon, everyone.

As Sehat mentioned, fiscal Q2 revenues came in at approximately $896 million, representing a 5% sequential increase over fiscal Q1 2011 and an increase of 40% from the same period a year ago.

Our non-GAAP gross margin for the second quarter was approximately 59.3%, down 130 basis points from the first quarter and up about 400 basis points in the same period a year ago.

This was just under the midpoint of our guidance of 59% to 60%.

Our overall operating expenses for the second quarter on a non-GAAP basis were approximately $260 million, at the lower end of our earlier projected range of $260 million to $270 million.

As compared to the same period a year ago, operating expenses were approximately were up approximately 14%, while revenues grew 40%, almost three times the growth in expenses reinforcing the leverage in our business model.

R&D expenses for the quarter were approximately $205 million, an increase of 2% on a sequential basis and an increase of about 19% from the same period a year ago.

This was below the midpoint of our original guidance of $210 million.

SG&A expenses for the quarter were approximately $55 million, essentially flat sequentially and from the year ago period.

This was in line with the midpoint of our prior guidance of $56 million.

This resulted in non-GAAP operating margin of approximately 30.3%, down about 40 basis points from the 30.7% operating margin reported in the prior quarter and an improvement of nearly 11 points from the same period a year ago.

Net interest expense and other income was a benefit of approximately $4 million.

Tax expenses were approximately $2 million.

Our non-GAAP net income for the second quarter was approximately $273 million or $0.40 per diluted share, a sequential increase of $0.02 per share.

During the same period a year ago, we earned $119 million or $0.18 per share.

The shares used to compute diluted non-GAAP EPS during the second quarter were approximately 678 million, down from 681 million shares in the prior quarter and higher than the 652 million shares reported in the year ago period.

Let me now summarize our Q2 results on a GAAP basis.

We generated GAAP net income of approximately $220 million or $0.33 per share in the second quarter, up approximately 7% from the $206 million or $0.30 per share in the prior quarter and significantly better than the $0.09 per share we reported in the same period a year ago.

The difference between our GAAP and non-GAAP results during the second quarter of fiscal 2011 was due to stock-based compensation expense of approximately $31 million or about $0.05 per diluted share and amortization of intangibles representing approximately $21 million or about $0.03 per diluted share.

Now, I would like to review our balance sheet as of the end of our second quarter.

Our cash and short-term investments were approximately $2.4 billion, up about $300 million sequentially and up about $1.1 billion from the same period a year ago.

Cash flow from operations for the second quarter was approximately $319 million, as compared to $256 million reported in the first quarter and up from the $182 million reported in the same period a year ago.

Free cash flow for the second quarter was approximately $292 million, representing a 33% free cash flow margin, up 23% on a sequential basis and a 66% improvement from the $175 million in free cash flow reported in the year ago period.

Accounts receivable was approximately $491 million, up about $42 million sequentially, reflecting increased shipments later in the quarter primarily from new products ramping.

DSO was 48 days, up about five days sequentially and up four days from the same period a year ago.

Net inventories at the end of the second quarter were approximately $239 million, up 16% from the $207 million reported in the first quarter.

Net inventories increased approximately $28 million or 13% on a year-on-year basis.

Baseline inventory about 55 days, down four days sequentially from the 59 days reported in the previous quarter and down 10 days from the year ago period.

Over the last several quarters, we have been attempting to build a modest level of safety inventory to better service our increasing revenues and expanding customer base.

The increase we experienced in Q2 was a direct result of the impact of the PC [ACD] supply chain discussed by Sehat earlier in the call.

Based on the inventory post we have witnessed in the last several weeks at the ACD hubs, we believe the inventory correction is behind us, and we should be at profile and drive-related inventory during the third quarter.

Accounts payable was approximately $386 million, up about $97 million sequentially and up about $117 million on a year-on-year basis.

The increase in accounts payable was due to a combination of increased inventory receipts at the end of the quarter in our anticipation of growth in mobile and wireless end markets and the ramp of new wireless customers where we are selling more of a systems solution.

Because of the business model service, these customers will reduce our inventory risk.

During significant ramp of new products, the payables tend to be higher.

I would like to turn to our expectations for the third fiscal quarter of 2011.

We currently project third quarter revenue in the range of $930 million to $970 million, a sequential increase of 4% to 8%.

We currently project non-GAAP gross margins in the range of 59% to 60% in line with our long-term model.

We currently anticipate non-GAAP operating expenses to be in the range of $265 million to $275 million.

At the midpoint, we anticipate R&D expenses to be approximately $205 million and SG&A expenses of approximately $65 million.

The primary drivers of the sequential increase in SG&A expenses are related to new product introductions and customer ramps, expenses related to DS2 acquisition announced earlier today and higher legal expenses.

At the midpoint of our range, our guidance translates into a non-GAAP operating margin of approximately 31%.

A combination of interest expense and other income together should net out to approximately $1 million benefit.

Non-GAAP tax expense should be approximately $4 million to $6 million.

We currently believe the diluted share count will be approximately 675 million shares, excluding the potential impact from any share repurchases during the quarter.

This non-GAAP EPS in a range of $0.41 to $0.44 per share.

On the balance sheet, we currently expect to generate approximately $250 million in free cash flow during the quarter.

We anticipate our cash balance to be about $2.6 billion, excluding any special items, M&A activity or share repurchases.

Currently, we expect our GAAP EPS to be lower than our non-GAAP EPS by about $0.08 per share, plus or minus $0.01.

About $0.03 of this difference is related to amortization of intangibles and $0.05 in stock-based compensation expense.

In summary, during the second fiscal quarter, we experienced a significant inventory correction in the largest end market we serve.

Despite this impact, we generated increased sequential top and bottom line performance, best-in-class financial performance and 33% free cash flow margin.

While we believe the inventory correction is behind us, we are forecasting lower than seasonal growth in our storage and network and end markets reflecting similar conservatism from other participants in the space.

Even with this conservatism, we believe our revenue can grow mid to high single digits in Q3, while still sustaining the best-in-class margins and significant free cash flow.

We recognize the concern that investors have regarding our exposure to the PC and storage market.

However, our performance over the last two quarters should demonstrate the expanded breadth of our multi-end market presence which provides us with the resilience to deliver world class financials results to our investors.

At the midpoint of our range and our guidance, storage should be approximately 40% of our revenue demonstrating the growth of our products serving the mobile communication end market.

The revenue performance of our mobile and wireless end market during the last two quarters should help mitigate doubt about the transformation of our business model.

We continue to believe and pursue our long-term targets presented at the beginning of this fiscal year and our confidence in this in part is reflected by the share repurchase program we announced today.

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

Operator?

(Operator Instructions) In an effort to allow as many listeners a chance to ask a question, each caller will be limited to one question and one follow-up.

We're now ready for our first questioner.

Your first question comes from the line of Glen Yeung with Citi.

Please proceed.

Thanks very much and actually, quite good results in the grand scheme of things.

I wonder if I can ask, just on the comments that you made regarding the drive business coming into balance, I think part of that is just an issue of inventory balancing there.

But when you look at the underlying PC market and you're now a month and-a-half into what other companies are seeing as their normal season, what are you now seeing from the PC market as we move through August?

Is your sense that we can see some degree of seasonality or are you seeing something somehow different?

Glen, guidance for this quarter, this we're in is a well below typical seasonality, so we'll have to stay with that.

But to add color, I think since the middle of July we have seen the consignment post improve so that's the positive indication, but I still think there is a lot ahead of us between now and the end of our quarter to make that call.

It seems improved in the last month, but still below seasonal patterns.

Okay .

And then just as a follow-up, you announced a relatively large buyback today.

I wonder if you could maybe articulate, Clyde, what the criteria for that buyback will be, what the decision making process will be for

What I will say, Glen, is we believe that, in our financial model, we believe that the current stock price is not reflective of what the business model is, and we intend to be active purchasers around this range.

That's probably the best description I can give you.

Fair enough.

Thanks very much.

Thanks, Glen.

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

Please proceed.

Hi, guys.

Thanks for taking my question.

Clyde, just a quick question here in terms of what your TAM expectations for the disk drive business, it seems that most of your customers there are guiding for growth unit growth in the 6% to 8% range for the third quarter and yet you're guiding a flat quarter off of a down 15% quarter.

Trying to understand the dynamics there is in terms of how conservative you could be in your outlook for the HDD business?

That's fair.

I think we indicated in our prepared remarks that it is conservative given what we have experienced in the last few months.

If it plays out, if the TAM plays out as described by the participants in the market, I think there will be upsides to the midpoint of we guided to.

So I think, Sukhi, it is more playing it down the middle reflecting conservatism we've seen in the last few months.

Okay.

And just a quick follow-up there.

On the networking side, obviously we had some of the big participants in that market, vis-a-vis Cisco, being cautious in their outlooks.

How are you looking at that segment as we progress through the end of this year?

That's all I have.

Thank you.

I think we said earlier mentioned flattish which is reflective of what the participants in the space indicate.

I don't think they have provided any forecast beyond that and I think it's remiss of us to go beyond what they're doing and certainly with our practice of just going out one quarter, we feel more comfortable with that.

Thank you, Sukhi.

Operator, could we have the next question, please?

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

Please proceed.

Good afternoon and thanks for taking my question.

Maybe just to return to the hard drive theme for a second, can you give us any color on what you saw in terms of hard drives, desktops verse notebooks?

It seems like there was a pretty big disparity in what many of your peers saw in the June quarter with respect to desktops versus notebooks.

Maybe give us any color on that if you could.

Jim, I think what we see is probably reflective of what seem to be more desktop, which seems strange to me, but probably a near term phenomenon, but I don't think it is any -- I wouldn't read any trend changes into that, so I don't think we can add any more color beyond.

It's hard to figure out in some cases where the chips that we built goes to the desktop or the mobile.

In some cases, they're using the same silicon into those two products, and the other part is the desktop space, some of this devices goes into consumers, while some of the 2.5" notebooks also goes to consumers as portable backups.

So, the market, its a lot bigger than just PC markets.

I will just add one last piece, Jim.

And that is, you have to remember given our market size, our share tends to reflect the overall market split between notebook and desktop, so I don't think you can really look for any real color between notebook and desktop builds from our overall numbers.

Do you have a follow-up?

Yes, please.

You'd mentioned that last quarter backlog coverage entering the quarter was about 90%.

Can you talk about what it is this quarter?

And then finally, if you can comment on the prospects of a dividend in the future in addition to the buyback you just announced?

That was two questions.

The backlog, the midpoint of our range is probably in the same percentile, hasn't moved much from the last period of time, from the last quarter, so that's similar percentage.

As far as the dividend or share buyback, didn't announce anything on dividend today, and I think we reserved -- we probably would reserve opinion on that.

I think what we should read into it is the Management and the Board is very interested in shareholder return, and we will pursue avenues that give them the best return of that, and I think that's going to be our guiding light going forward.

Great.

Thanks very much.

Thank you.

Your next question comes from the line of Uche Orji with UBS.

Please proceed.

Can you hear me?

Yes, Uche.

Go ahead.

All right.

So let me understand.

You are saying the (inaudible) 5 million access as you did the inventory, let's clear now.

Did you have to -- what did that mean for ASPs for Marvell, I'd like to clear that?

And then in terms of how you envisage demand going to back-to-school and also going to seasonal Q4, any comments will be helpful just to understand the recovery you mentioned in the space.

Did you understand the question?

Well, he had two questions on ASP trends given the demand.

Okay.

We didn't see any impact, material impact on the ASPs.

This was more of an inventory situation for us, especially as we announced earlier gross margin was still in the 59% to 60% range, so no material change to read out.

As to back-to-school and fourth quarter, I think, Glen asked the same question earlier.

I think our forecast is conservative.

It is probably flattish, plus or minus.

Some of our customers, as indicated earlier, are more positive than that, if that plays out, that will be more positive for us, and I don't think we've got enough insights to talk about Q4 right now.

Right.

And in terms of cell phones, most of the strength you talk about in your mobile area was in the Wi-Fi area.

Any comments as to what's happening on the cellular side and specifically as I start to look for channel mobile and your efforts in China to start to contribute.

Any comments on the progress there would be helpful.

Thank you.

So they were questions?

Yes.

Sorry.

So, the existing customers are doing well.

That's the easy answer, first answer.

Second answer will be for the [TDSVME3G] for the China mobile end markets, so that one is actually doing also very well.

Maybe we have numerous customers and the final stage of the design phase in terms of the delivering designing new handsets, sorry, not headsets, new handsets.

So, the timing will be probably in the next several -- two quarters or so, sometimes early next year when these products will be starting into productions.

That's my best guess at this point, a lot of software porting into these handsets at this point.

Okay.

Thanks.

We'll take our next question, please.

Your next question companies from the line of Harlan Sur with JP Morgan.

Please proceed.

Hi.

Good afternoon and thank you for taking my question.

Just one last question on the HDD business in the second quarter.

You talked about excess inventories in the value chain and so Marvell is on a hub-based procurement system, so I'm assuming it was not inventory burn on your parts, and that your customers just weren't pulling from the hubs.

Is that the way to think about it?

Yes, but I wouldn't read too much into that.

That's correct, but I think the entire PC chin chain had built up inventory ahead of what at the time was anticipated to be a normal second half season period, and so the chain responded responsively in our opinion and tightened things up until more clarity on the end demand plays out.

Okay.

Great.

Thank you for the clarification.

And then on the new HDD customer that you started to ramp into, how long does it typically take to get to a normalized run rate for the platforms, for example, that you're ramping now?

Is it about two to three quarters to get to full run rate?

It is about usually many programs, many different mechanicals, platforms call it, the drive guys call it platforms.

So, we are on one platform, okay, so over time there will be hopefully we see more and more platforms.

So if you take into account all the multi-platforms they also go through, I would say around a year or four quarters or so it will be the typical patterns that we have seen in the past.

So four quarters for one platform but I'm assuming that over --

No.

Foreseeable future you're going to be ramping multiple platforms?

I am sorry.

What I meant was for when you get a few platforms to ramp it will take us about four quarters.

Okay.

I got it.

All right.

Thank you.

Thanks, Harlan.

Your next question comes from the line of Nicholas Aberle with Janney Capital Markets.

Please proceed.

Hello, guys.

Thanks for taking my questions.

On gross margin, the gross margin held up fantastically well during the quarter despite what most people would think would be a pretty big negative mix shift.

Can you just talk about what the levers there were to sustain gross margin and as mobile wireless becomes a bigger part of your business over the longer term, do you expect it to stay resilient like that over the longer term?

Thanks, Nick.

I think it might be an expectation that, well, mobile and wireless has changed substantially over the last six months.

It is improved 18% in Q1 and over 50% this quarter, and our margins held up, so I think you can read that as indicative of what the future could hold.

I do want to reiterate our long-term gross margin model is 58% to 60%, so I encourage people to stay within that range.

It's perhaps -- I think people might perceive one segment being overwhelmed versus other segment, and I think the results over the last six months demonstrate the breadth of Marvell's Management to deliver quality margins across all of our product lines.

Also, as mentioned, I think I responded to the several times in the last maybe several years with respect to margin, as the way I put it in the past was as products -- complex products requires a tremendous amount of R&D expenses, and so those products especially, it's reasonable to expect that the industry will have a reasonable return on those investments.

So, for those kind of complex products, I think they're the kind of expectations of 58% to 60% gross margins I believe is just quite reasonable and should be expected throughout the industry.

So, I think that we are consistent and we hope that in the long run it stays the same as well.

Got you.

And then in terms of looking at the mobile wireless business in Q2, you guys provided some color as to the contribution to that growth from ARMADA processors and embedded Wi-Fi and looking into Q3 you guys guided the whole bucket up 15% to 20%.

Any additional color you can provide to tell us which maybe which pockets are growing better and contributing more growth?

Thanks.

See, I think the same areas we indicated earlier that a lot of these are new product ramps, so usually these things take two to four quarters to get to maturity.

So, a lot of the next quarter is follow through on these new products.

There is probably some new products coming out, but they're in the same buckets with similar and new customers.

Your next question comes from the line of Craig Ellis with Caris and Company.

Please proceed.

Yes.

Thanks for taking the question.

Just wanted to follow up on the mobile and wireless, the performance was quite strong.

I think about twice as good in the quarter as you had expected, appreciate all the color by product area.

Can you just identify where within those products you had the upside versus what you expected going into the quarter?

I think a couple of callers earlier described upside depending on what your views are for the PC and PC-related market, so that's clearly one area and we were clear that we were being more conservative about that, so there is one area of upside.

I'm sorry, Clyde, I meant within the mobile and wireless segment.

I think you said going into the fiscal second quarter that you expected 25% growth there.

You delivered 50.

So, I was trying to understand which of the product groups gave you that incremental upside.

It came from all areas.

It came from both the cellular side of it, as well as the Wi-Fi side of it.

Both areas came on.

These are new products.

It is sometimes hard -- it is often very hard to predict on new product how fast these ramps would happen and that's why you have over 50% sequential growth versus our initial guidance of over 25%.

Technically, we were correct, it was over 25, but, Craig, sometimes it's difficult to predict.

With new products, there is so many things that needs to be tightened up as these products come just before they launch, and so that creates more volatility prediction of it.

That's right.

So, the hard part is for us to predict when a customer wants to introduce new handset, for example, customer typically will have to prebuild enough handsets for the launch, so probably because some of this because of that I will assume.

Okay.

Those are fair points, and then as the follow-up, Clyde, versus this same time about two years ago, I just sense a lot more confidence in your tone about Marvell's ability to grow despite an uncertain macro back drop.

So, is that because of what you're sealing in your hub pulse?

Is that because of the enhanced breadth in the product portfolio and the momentum that you have in your new products?

Can you just talk about what's given you the confidence to guide to 48% growth?

There's a third one.

I've been here for two years.

Fair enough.

Versus two months the same call it would years ago.

I think it is the bread of the product line.

We've been describing this, long before I came here.

We've been doing this for the last two years and I think my opinion is people underestimate the strength of the technology and the products that Marvell has and we keep delivering again and again.

So to me, the confidence comes from the products that we have, that this team has been working on and management team has done and employees have done such a great job working hard to bring these products to market.

We've said six months ago at the beginning of the fiscal year we have an inflection point and we begin to prove it.

So, I think it's the breadth of the product line.

I don't know if you'd agree.

Yes.

I would say, as Clyde mentioned, a lot of people underestimated the strength of our technology, the amount of investment that we have invested put into the three, four years.

Our investment in smartphones, our investment in advanced application processors for high-end smartphones, tablets, markets.

So a lot of these investments takes times to materialize, product has to materialize, takes time for the revenue to ramp up.

But regardless, we're strong believer that we as a company, Marvell as a company, will benefit significantly as (inaudible) to the phase of devices get into various extremely small geometries where we can put many, many functions on a single piece of device thus allowing a consumers to reap the benefits of the technology the industry has been investing the last five or ten years.

And the volume was just -- I think the consumer was just be able to get by significant of this large volume of those devices.

All it takes is, requires is for companies like us to develop this technology, and, we're talking about just 3G.

We're talking about Wi-Fi.

We're talking about Bluetooth.

We're talking about HDTV.

We're talking about 3D graphics.

We're talking about HDMI, multi-core processors.

So all the different types of interfaces and all of these things have to be integrated, Power Management, we talk about this for several years, and then so all of the adjacent technology that needs to be there because the device is not just for mobile devices.

The device also needs to go into the living room and they all want to have similar look and feel, whether it is living room or on a mobile devices, so all of these things huge opportunity beyond the traditional PC market that we serve historically.

So, the market, the way I look at it, the market that we're addressing in the future is significantly bigger than the traditional PC market.

So this is what we're excited, this is what we invested in those developing those technologies.

Very helpful color.

Thanks, guys.

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

Please proceed.

Hey, guys, thanks for taking my question.

Nice job.

My first question is on the baseband business, which is your main comprocessor customer, recently launched a new product that has been getting mediocre reviews.

Without getting into any customer specifics, when can we expect to see a 1 gigahertz processor out from you guys that's competitive with the likes of a Qualcomm?

Let me answer this one.

First, I understand some people may have skeptical about the success of our customers.

I see the products, and I thought the product was really, really excellent.

I do believe they'll be very successful with those products.

Now, with regards to gigahertz, our products, we do have -- feel free to come to the Marvell to visit us and then we'll show you the gigahertz processor.

In fact, if you want to see a 2 gigahertz processor, we also have a 2 gigahertz processor in a different class of product line.

So, we do have that.

So, I think the important part is not just we have the gigahertz processor.

We also have the solution that works well once this processor integrated into a device.

Many of the devices that people talk about gigahertz, once you look at overall system performance, they behave as if they're running only like a half of the frequency that you expect from those processors.

And you will not see this kind of performance from ours, our processor will shine and be able to run HDTV and 3D graphics simultaneously on the device.

You won't be able to see that from, without naming names, from anybody in the -- anybody else in the market.

Feel free to stop by to see the demo.

Okay.

Thank you for that detail and I look forward to seeing some of that product hit the market.

As a follow-up, in mobile, how do you guys have confidence that the strength, I think it is up 50% over the last couple quarters including guidance, how do we have confidence that that strength isn't going to require an inventory adjustment later or lumpiness with some of your big customers there.

And as part of that, if gross margins were towards the lower end of your guidance range this quarter, and mobility increases, isn't that going to put pressure on gross margins potentially to dip below that 59% level?

Thank you so much.

I'll take the gross margin question.

All guidance this quarter is similar to last quarter.

And so in spite of the growth of one segment over another one, and it is consistent albeit at the high-end of our long-term model and I think, Craig, that speaks for itself.

As the mix changes, there is that perception that things would trail off and hopefully we have pleasantly surprised people in that respect.

As to the first part of your second question, there is no assurance that the inventory, when we entered the market last quarter, I don't think anyone in the entire food chain anticipated inventory.

So no one could give you assurances that they won't be.

What gives us the confidence though, is that these are new programs that are ramping.

We believe these programs, there are multiple programs --

The key is we give them multiple programs.

-- multiple programs in there.

We obviously hopefully have demonstrated our ability to manage through tough situations and still deliver these results.

But, so we think the assurance that we can give, understanding that there is no absolute assurance that can be given, is that these are multiple programs that have follow-on devices that's going to come through on these.

So, we aren't dependent on any single device being successful for the broad range of Marvell to be successful, and I think we've demonstrated that successfully two or three quarters in a row.

Great.

Thanks, Craig.

Can we have the next caller, please?

Your next question comes from the line of John Pitzer with Credit Suisse.

Please proceed.

Yes, guys, thanks for taking my questions.

Guys, a lot of times when your drive customers go through an inventory correction, they use pricing to try to accelerate the unit cleanup.

I'm just curious can you remained me what happened to your guy's pricing through such an event and is that something that we have to be incrementally more concerned about in the near term or not?

I think we answered that question earlier, John.

There were no material changes in pricing.

We do support our customers.

They're very happy with the quality and the technology that we deliver, and that speaks for itself, so there aren't any material changes in pricing.

We don't anticipate any significant changes.

Our gross margin performance has been extremely consistent north of 59% for I believe about a year now, in spite of all of these and in spite of the mix that people perception would be.

I think the numbers speak for themselves.

And then, Clyde, as my follow-up, the mix in the July quarter was clearly impacted by the inventory correction on the storage side, but I'm curious, given the sustainable growth you're seeing in the wireless and the mobility, is this the right kind of structural mix for us to think about for the Company?

Or do you think there is still growth left in the hard drives and the storage space as that recovers and you bring on new programs?

How do we think about the longer term mix for the Company?

I think at the beginning of the year we provide input and our estimates on that and we still believe that's true albeit two quarters in since then there's been correction.

I think the PC market will improve.

I think near term issues aside, we are still optimistic about that.

But, I think the Marvell story has always been about new product introduction, new technologies, and the breadth of it I have described earlier.

So, I have said this to a number of investors repeatedly.

We're not subject to any single segment.

We're not subject to any single product.

I think we've demonstrated the business model we have today could withstand a lot.

There's no guarantees in the future, but this is a big company with a broad breadth of product, excellent products, excellent engineering team that is going to continue to deliver, and I expect that to change -- not to change in the future.

Another part I guess people need to be -- another part people needs to be aware that the drive industry is not just serving the PC market.

My guess is at this point the drive industry about two-thirds of the drive industry is, maybe less than two-thirds, is addressing the PC and the rest of the -- other than PCs, consumer devices, and you cannot say the same thing about ten years ago.

So, as we progress, we do expect to see more and more application for hard drives outside the PC markets, so that we have the same questions ten years ago, five, ten years ago on how big the drive industry could grow, and it always surprised us that there are always new applications for hard drives.

And the hard drives, be able to build higher capacities for the same price seems endless.

So, there is still a lot of room to grow in the space, at least in the next several years.

Great, guys.

Very helpful.

Thank you.

Thanks, John.

Operator, we'll take one last call today, please.

Your next question comes from the line of Sanjay Devgan with Morgan Stanley.

Please proceed.

Hello, guys, thanks for squeezing me in.

Just wanted to touch on your new products.

You noted that that was up 60% quarter-on-quarter, it's now about -- or it was 0.25 of your revenue.

Could you talk through -- obviously a big portion of that likely came from the mobile and wireless.

But outside of mobile and wireless, can you give us a sense of the networking opportunities, how that fared in terms of new product developments.

And then beyond networking, can you give us a sense of new products that may have come out that don't fit into one of your three major buckets, i.e., storage, mobile and wireless or networking.

This is a complicated -- I will give you a flavor of the networking.

It will take normally awhile to explain this.

One of the opportunities networking is as more and more of these devices that mobile devices or these more people want to deliver video-on-demand to the homes, there will be an increased demand of switching networking equipments in the data centers in the cloud.

So more and more of those devices would need to have 10 gigabits or 40 gigabits throughput per port, so the chips that we need to build becomes more and more complex.

For example, sometimes last year we introduced a 48 port, 10 gigabits switch, so basically it has 10 ports of -- sorry, so 48 ports of 10 gigabits on a single piece device.

And these devices usually can be cascaded to an even bigger system.

So, there's a lot of -- the good thing is demand, the customers are demanding more complex products, on one hand.

On the other hand, there are fewer and fewer suppliers that can do this.

We are one of the less than a handful of companies in the world, maybe one or two companies in the world that can build this.

So this is -- the nature of this business is quite -- it's very quite interesting, a little bit hard to explain.

I will just add to that, Sanjay, as you know the definition of new products are products we've introduced over the last twelve months that are in volume production.

In the networking space, the design to revenue cycle can be anywhere from 18 to 24 months at a minimum, so while design win activity's very, very strong with the products like Sehat's talking about, the Prestera, the switches, those products have not yet gone into volume production on certain programs.

As they go to volume production, they get included into new product revenue and that metric.

Do you have a quick follow-up?

Great.

No.

That's all I had.

Thanks so much, guys.

Great.

Thanks, Sanjay, and I'd like to just thank everyone for their time today and the continued interest in Marvell.

As a reminder, we will be attending several investor conferences over the next couple weeks.

On September 8, we will be attending the City Technology Conference in New York City.

On September 14, we will be attending the Deutsche Bank Technology Conference in San Francisco.

We thank you for your interest in Marvell and look forward to speaking with you at these upcoming conferences and the coming months.

Thank you very much.

Have a good day, everyone.

Bye.

Thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect your lines.

Good day.