邁威爾科技 (MRVL) 2011 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third quarter 2011 Marvell Technology Group Limited earnings conference call.

I'll be your coordinator for today.

All lines have been placed on mute to prevent any background noise.

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 for today, Mr.

Jeff Palmer, Vice President of Investor Relations.

Please proceed, sir.

Thank you, Amanda, and good afternoon, everyone.

Welcome to Marvell Technology Group's third 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 have 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 involve risks and uncertainties that could cause Marvell's results to differ materially from management's current expectations.

The risks and uncertainties include statements regarding revenue trends within our end markets, our expectations about the sale of new and existing products, the sustainability of our long-term business model, general market trends and specific statements regarding our financial projections for the fourth 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 expenses 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 third 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.

I'd like to now turn the call over to Sehat.

Thanks, Jeff, and good afternoon, everyone.

During our fiscal third quarter, we generated revenue of approximately $959 million, a 7% sequential increase and a 20% increase over the same period a year ago.

We delivered non-GAAP gross margin of 59.5% and an operating margin of 32.4%, resulting in non-GAAP earnings per share of $0.45.

Again, we generated significant free cash flow of approximately $338 million, equivalent to a 35% free cash flow margin.

We delivered excellent performance during the quarter across most of our end markets.

We continue to deliver substantial profitability and cash flow generation, highlighting the long-term leverage of our business model can deliver.

Now let me provide some color on what transpired during the quarter.

In the mobile and wireless end market, sales increased about -- over 20% sequentially, and represented about 35% of our total revenue during the quarter.

This was above our prior guidance of 15% to 20% growth.

Looking at the sources of the growth, about two-thirds of the sequential increase was due to continued demand for our cellular communication processors.

About one-quarter of the sequential increase was due to strong seasonal demand for our embedded wireless LAN products.

The remainder of the sequential growth was due to continued demand for our ARMADA application processors.

After three consecutive quarters of significant growth, we are anticipating our embedded wireless LAN business, particularly our game console business, to experience normal seasonality.

As you're aware, the game console market has a heavy build schedule in calendar Q2 and Q3, ahead of the seasonally strong holiday selling season.

In addition, over the last couple of quarters we have increased our position in this market which gives us a dominant share in the space.

This has the effect to exacerbate the seasonal impact on our wireless LAN revenue.

The remainder of our mobile and wireless business is expected to be essentially flat on a sequential basis.

Taken together, we believe our mobile and wireless business will decline approximately 10% at the midpoint of our overall guidance.

To further our leadership during the third quarter, we introduced several important new products in the mobile and wireless market.

First, we announced the world's first tri-core application processor, the ARMADA 628.

This is a highly integrated SoC with three SMP RMB cell and CPUs, two high performance symmetric multi-processing engines capable of up to 1.5 gigahertz and a third CPU capable of over 600 megahertz.

The device is designed to operate similar to a hybrid car.

In normal situations like processing e-mail or texting, the CPU relies on the lower performance core saving significant power.

When increased processing horsepower is needed, like when playing advanced 3D graphics games, the device could rely on the two high performance multi-processing CPUs.

In order to deliver high quality video, graphics and audio performance, there are additional processing engines.

There are four sharers operating at over 500 megahertz, capable over 300 million triangles per second 3D graphics and a full 1080P video encode/decode engine which can simultaneously support two H.264 high profile video streams.

This enables the device to support 3D video in Blu-Ray quality.

The second significant product introduction was the Avastar 8764, the world's first 802.11 and 4X4 single chip wireless LAN device.

This product is targeted at the enterprise and high end wireless access point market.

With four independent transmit receive RF chains supporting three MIMO spatial streams, this device is the first in the world that can deliver up to 450 megabit per second data rates over a wide range of operating conditions.

We're getting significant interest for both of these new products from new and existing customers.

Now turning to the networking end market.

Our sales declined approximately 9% and now represents about 70% of total revenue.

This was lower than our original guidance for flat sequential growth.

The weakness was concentrated in the enterprise networking end market and was primarily due to inventory reductions at our customers.

The decline in the enterprise market was partially offset by sequential increases in the sale of ethernet client products.

Looking into the fourth quarter, we believe revenue from the networking end market will be about flat on a sequential basis.

Lastly, turning to our storage end market, the revenue increased about 3% sequentially, better than our original guidance for flat sequential growth and represented just over 40% of total revenue.

Our growth in the storage end market was consistent with trends in the overall HDD industry.

Looking into the fourth quarter, we believe revenue in the storage end market will continue to track the end markets, essentially flat on a sequential basis as our fiscal quarter includes the January month.

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

The revenue from new products during the quarter was approximately $87 million and represented about 9% of our total revenue.

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

About 40% of the new product revenue was a result of increased traction of our embedded wireless LAN devices, and about 20% was related to strong shipments of our new ARMADA application processors.

New products in our storage end market accounted for about 15% of the total, with the remainder from networking and printer products.

In summary, our third fiscal quarter results demonstrate that Marvell continues to deliver long-term growth in our target markets.

We believe that our business continues to become more diversified -- as we become more diversified, we should be better positioned to withstand quarter to quarter fluctuations in the various end markets we serve.

We believe we are making progress across all our served end markets, in alignment with our R&D investments.

Our positive customer engagements should help fuel our future growth, consistent with long-term goals.

Lastly, we continue to deliver results which validate our long-term business model, a clear demonstration that Marvell can deliver positive earnings leverage and significant free cash flow.

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

Thank you, Sehat, and good afternoon, everyone.

As Sehat mentioned, fiscal Q3 revenues came in at approximately $959 million, representing a 7% sequential increase over fiscal Q2 2011, an increase of 20% from the same period a year ago and at the upper end of our earlier guidance.

Our non-GAAP gross margin for the third quarter was approximately 59.5%, up 17 basis points sequentially and up about 170 basis points from the same period a year ago.

Our results were in line with the midpoint of our guidance of 59% to 60%.

Our operating expenses for the third quarter on a non-GAAP basis were approximately $260 million, lower than our earlier projected range of $265 million to $275 million.

As compared to the same period a year ago, operating expenses were up approximately 12% while revenues grew 20%.

R&D expenses for the quarter were approximately $198 million, a decrease of 3% on a sequential basis.

As compared to the same period a year ago, R&D increased about 6%.

This was below the midpoint of our original guidance of $205 million.

SG&A expenses for the quarter were approximately $61 million, an increase of approximately 11% sequentially, below the midpoint of our prior guidance of $65 million.

As compared to the same period a year ago, SG&A was up about 40%.

However, it was essentially flat if you exclude legal expenses.

This resulted in non-GAAP operating margin of 32.4%, up 210 basis points sequentially and an improvement of 340 basis points from the same period a year ago.

Net interest and other income was an expense of approximately $2 million.

This included approximately $6 million of expenses due to currency translation effects on our tax reserve in foreign jurisdictions, resulting from the decline in US dollars.

Tax expenses were approximately $2 million.

Our non-GAAP net income for the third quarter was approximately $307 million, or $0.45 per diluted share, a sequential increase of $0.05 per share.

Through the same period a year ago, we earned $232 million, or $0.35 per share.

The shares used the to compute diluted non-GAAP EPS during the third quarter were approximately 677 million, essentially flat sequentially and higher than the 64 million shares(Sic-see press release) reported in the year-ago period.

During the third quarter, we spent approximately $61 million to repurchase 3.6 million shares at an average purchase price of approximately $17 per share.

Let me now summarize our Q3 results on a GAAP basis.

We generated GAAP net income of approximately $256 million, or $0.38 per share in the third quarter, up approximately 16% from the $220 million or $0.33 per share in the prior quarter.

As compared to the year-ago period, GAAP net income increased nearly 27% from $202 million, or $0.31 per share.

The difference between our GAAP and non-GAAP results during the third quarter of fiscal 2011 was due to stock-based compensation expense of approximately $30 million, about $0.04 per diluted share and amortization of intangibles represented approximately $22 million, or about $0.03 per diluted share.

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

Our cash and short-term investments were approximately $2.7 billion, up about $300 million sequentially and up about $1.2 billion from the same period a year ago.

Cash flow from operations for the third quarter was approximately $368 million, as compared to $319 million reported in the second quarter, and up from the $204 million reported in the same period a year ago.

Free cash flow for the third quarter was approximately $338 million, representing a 35% free cash flow margin, up 16% on a sequential basis and a 73% improvement from the $196 million in free cash flow reported in the year-ago period.

Accounts receivable was approximately $468 million, down from about -- down about $23 million sequentially, reflecting improved linearity during the quarter.

DSO was 45 days, down about 2 days sequentially and up 5 days from the same period a year ago.

Net inventories at the end of the third quarter were approximately $228 million, down 5% from the $239 million reported in the second quarter.

Net inventories declined approximately $11 million, or $0.05 -- 5% on a year on year basis.

Days of inventory were about 54 days, essentially flat sequentially, and down 6 days from the year-ago period.

Accounts payable was approximately $352 million, down about $33 million sequentially and up about $35 million on a year on year basis.

Now I'd like to turn to our expectations for the fourth fiscal quarter of 2011.

We anticipate revenues to be in the range of $900 million to $950 million.

At the midpoint of this range, our guidance represents a decline of just over 3%, all of which is attributable to the seasonal declines related to the gaming console portion of our mobile and wireless end market.

As Sehat indicated earlier, this seasonal decline should be expected.

We have experienced similar declines in the past, although the extent is larger now that we are serving more gaming console customers with approximately 75% share of this space.

Beyond this, revenue in our other addressable end markets taken together is expected to be essentially flat.

Our sequential revenue trends in Q4 may be lower than historical norms.

However, given the weaker trends in the PC market we have experienced for the past six to nine months, combined with the recent subdued demand in the networking space accounts for the lower than normal trend we are experiencing.

We consider theses effects to be near term, not Company specific and should be resolved within the next year.

We project non-GAAP gross margin to be 59.5%, plus or minus 50 basis points, in line with our long-term model.

We currently anticipate non-GAAP operating expenses to be in the range of $260 million to $270 million.

At the midpoint, we anticipate R&D expenses to be approximately $202 million and SG&A expenses of approximately $63 million.

At the midpoint of our range, our guidance is translate to a non-GAAP operating margin of approximately 31%.

The combination of interest expense and other income together should net out to approximately a $3 million benefit, without consideration for currency translation impacts.

Non-GAAP tax expense should be approximately $3 million.

We estimate that the diluted share count will be approximately 687 million shares, excluding the potential impact from any share repurchases during the quarter.

This yields non-GAAP EPS in a range of $0.40 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 $3 billion, excluding any special items, M&A activity or share repurchases.

We currently expect our GAAP EPS to be lower than our non-GAAP EPS by about $0.06 per share, plus or minus $0.01.

But $0.02 of this difference is related to amortization of intangibles and $0.04 is stock-based compensation expense.

In summary, during the third fiscal quarter, we delivered excellent business results with revenues, operating margins and free cash flow at historical highs.

Our anticipated results for the fourth quarter are reflective of the typical seasonality we expect as we increase our presence in more consumer centric businesses.

In spite of this, our margins and earnings continue to sustain at high levels.

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

Amanda?

Thank you, sir.

Ladies and gentlemen, we would now like to open the lines for your questions.

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

We are now ready for your first questioner.

Your first question comes from the line of Harlan Sur of JPMorgan.

Please proceed.

Hi.

Thank you for taking my question.

On your mobile and wireless business, I can clearly see your embedded Wi-Fi business being seasonally weaker in the fourth quarter, but your largest handset customer is seeing solid handset shipment growth in both their November and February quarters.

So, I'm just trying to figure out where the disconnect is in terms of your flat guide for your comps processor business relative to your largest customer which is going to see two quarters of pretty strong handset shipment growth, looking out here over the next few months.

Is there an additional component there, like inventories which need to be burned off?

Any color there would help.

Thank you.

Harlan, I don't think there's any disconnect.

I think you've got to look at the supply chain, and I think you might be reflecting consumer purchases as opposed to in the supply.

So, if you look back, we had 20% sequential growth in this end market, in the most recent Q3, and over 50% in the quarter before that.

So, I don't think there's any disconnect.

If you aggregate them over, say, a four quarter period, you'll find out there is no other color other than timing perhaps of supply and consumption.

Okay, and then my next question is on the HDD front, I think the recent TAM outlook for industry shipments is looking something like up 2% to 3% sequentially here in the December quarter,and I know that the team also has Hitachi ramping in two platforms now.

Is it still conservatism that drives the flat growth outlook or, again, is there some other factor that we're overlooking here that leads to the flattish growth outlook for your January quarter?

Yes, we got accused last quarter of conservatism, and I think people unfortunately came back to our forecast.

I think you need to consider, we don't disagree with December numbers, but Sehat mentioned in his prepared remarks that you have to consider we have a January month, a fiscal quarter, and I think the same data point you referred to would have declining Q1, typical seasonality.

So, when you add that up together, Harlan, I think you'll find that our forecast is consistent with end markets we serve.

Okay.

Thanks, Clyde.

You're welcome.

Your next question comes from the line of Glen Yeung of Citibank.

Please proceed.

Hi, can you -- sorry, this is Jie for Glen Yeung.

Can you talk about the mix of gaming versus com processor and handset within mobile and wireless?

And what is your expectation for mobile and wireless division next year?

To the first part of the question, we don't disclose the mix within the end market because it's collectively in that space.

So sorry, can't help you with that, although the dynamics within it, we tried as best we can explain in the call.

At mobile and wireless next year, was the question, Jie, end market or Marvell?

Sorry, for Marvell and the end market.

I think -- I was reading recently that end markets is expected -- we participate in smart phones, and that smart phone market is intended to grow fairly substantially next year.

I was reading a report this morning I think on the same effects that it's planned to grow.

So, we think that market is going to grow substantially next year and at Marvell, we intend to grow at least at the market, if not better.

Okay.

Thank you.

And then the second question is you discussed some weakness in enterprise networking with some inventory reduction at customers.

Have you seen the inventory work through so far?

We're only one month into that quarter, so it's still early.

I think this -- I don't think this is going to be a prolonged inventory workout.

The supply chain, as we've demonstrated early in the year on the PC side of it, is fairly efficient about working through inventory.

So, I don't think this is going to be prolonged.

Whether it's going to be one quarter or so, I don't think it's going to be a prolonged effect of that.

Okay.

Thank you.

Thanks, Jie.

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

Please proceed.

Thanks for taking my question.

Clyde, I think recent commentary suggests that the market for the Microsoft Connect actually is better than expected, and yet you're guiding your wireless LAN business on the console side to decline significantly here.

Maybe you can help us explain, maybe is there other platforms that are going down other than Microsoft?

And what kind of dynamics are taking place in that area?

I would agree.

I think Connect's an exciting one, Sukhi.

I just bought one a couple of days ago, so I'll be dancing this weekend to that.

We have three employees by (inaudible) by three (laughter).

There you go.

So, it is.

We -- that's very good product, and all our customers in the space seem to be doing very well, but I think you've got to look at it in the aggregate.

Most of these guys, as we indicated early, build it up, get it on a boat or plane, however they deliver it to you consumers here, and then they take pause.

So, there's potential to be upside.

I don't think it's going to move the needle for that one part of that product.

But we're happy to hear that our customer products are doing well.

Got it.

Okay.

And then switching over to the operating expenses side of things, your R&D was lower in the October quarter, and yet you're guiding your R&D -- your overall OpEx to increase in the January quarter despite the revenue being down.

Was there something that happened in the October quarter that's pushing the R&D into the current quarter?

Could you help us explain why your overall OpEx is going up?

Thanks.

No, there's nothing that was pushing into the quarter.

We described to you guys our model.

We are very excited about the long-term prospects.

We have a ton of new products in the pipeline that we need to invest in, and we'll continue to invest.

And obviously, Sukhi, I know you know this, we don't invest in the Company on a quarter by quarter basis.

As both Sehat and I indicated earlier, we think this is more of a seasonal trend.

So, we'll continue to invest in the Company, we'll continue to increase our R&D, and that's pretty much where that is.

There was no management as such, as your request might imply.

I think we intend to continue to grow R&D to sustain the revenue growth we see ahead of us.

Great, thank you guys.

Thanks, Sukhi.

Your next question comes from the line of Ambrish.

Please proceed.

Hi, thanks.

Clyde, just a follow-up on Harlan's earlier question on the disc drive.

And I guess expectations are anywhere from flat to up a little bit Q over Q.

But what does it say of the ramp that you are undergoing at one of your customers?

Is this an implication that the ramp is falling out, or is there a pricing issue here that we might be seeing?

And then I have a follow-up as well for you, Clyde.

Thanks.

Sure.

No, it doesn't say anything about a ramp.

Just like with the previous question, one customer, one product isn't going to move the needle when you're looking at $900 million plus of revenues.

So, there's no message in the ramp at that particular customer.

We started off a couple quarters ago, that continues.

We expect that to continue into the next year and typically takes a few quarters for that to improve.

So, there's nothing, no change from where we are.

I can give some additional color to that.

This is -- the drive industry is an industry that's misunderstood by many people, including our own people internally.

So, it takes a long time to get the design win and it takes -- it seems -- it usually takes time, longer time to get the new -- to get new design wins to ramp up.

And then especially at the early times, early days of the ramp-up schedule and also on the other hand, at the tail end of the ramp-up usually takes faster ramp-up than expected.

So, you have this fact that it's quite unique in this industry.

So, because of this, in the last 15 years we've been doing this business, we never look at this ramp up or this profile as a measure of success into this business.

But the way we measure it is by the design wins, whether we have the design wins or not.

When we get the design wins, okay, that is sufficient to make us feel comfortable when the designs fully ramp up we will have significant market share, as usually those programs will take over the older products.

So, that's something at the end of the day, what matters.

I'll raise my hand.

I'm first that I don't understand the industry that well either, but thanks for the clarification.

And your track record is there, so.

A follow-up real quick, Clyde, on the buyback, could you help us understand what kind of parameters are you using to start implementing the $500 million that you announced last quarter?

Thank you.

Sure.

The parameters is simple.

We're going to buy what we announced at $500 million, and we bought just over 10% of that last quarter, and we'll continue to buy the market going forward.

There's no other parameters other than those metrics.

Okay, great.

Thanks.

Thanks, Ambrish.

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

Please proceed.

Good afternoon.

Thanks for taking my question.

I was wondering on your guidance of down 3% at the midpoint, if you could help us understand what's baked into that guidance in terms of both end demand, sell-through during the holiday season, as well as Chinese New Year heading into January.

Thank you.

And what swing factors could cause that to be up or down on either end of that range?

Good question, Jim.

The end demand sell-through, which all of us looks at, probably maybe a little bit earlier than Black Friday this time around, won't have as much effect.

Because if things are doing well, it's hard to go back into the supply chain effect chip supply, which is still fairly decent lead times, to be able to turn that around into the quarter.

So, it would have an effect in perhaps the next quarter or obviously long-term, hopefully, it's a positive thing for all of us.

But it's unlikely to have an effect for us in this quarter.

With respect to Chinese New Year, we don't --

That's harder to -- I think we have Chinese New Year, it's harder to predict what the impact's going to be.

Right, so it is harder, and it's in early February this year, so it would have a timing of when people either consume products or build ahead for their factory shutdowns, would have an effect, and we've tried our best to accommodate some of that into our forecast.

Great.

That's helpful.

As a follow-up, I would really like the to get your opinion on how you see the potential for cannibalization of the hard drive market overall, whether that's tablets cannibalizing netbooks or even within -- excuse me, notebooks, or even within notebooks, solid state drives versus hard drives.

And any quantification you can provide on that would be very helpful.

Yes, I think we talked about this many times in the last few quarters, but I still believe in the same comments that we've been always saying.

The hard drive markets will -- well, the tablets is going to have some impact on the hard drive market, that's clear.

Because of the form factor requires that, because the tablet tends to be much, much thinner than the notebooks.

However, having said that, okay, the notebooks market will also -- will continue to grow as the pricing of the notebooks are significantly lower priced than the tablets and significant numbers of users around the world that today do not have yet PC exposure.

So, there's a lot of greenfield markets for notebooks as well as for the tablets.

So, I'll say that both have opportunities.

So now, because of these dynamics of tablets getting -- some people in the developed worlds, they already have a PC, already have a notebook.

Maybe they will buy, for a change they will buy tablets.

For people that have older -- especially if those laptops are pretty new already, it's only like a year, so they'd probably wait and buy tablets.

But as these lower power high performance PCs, laptops come into the market, they also buy -- they have to replace that to buy more laptops.

Our projection is that the HDD will -- for now, it's going to be flattish.

Okay, growth, okay, because of economy and -- but in the long run, this will continue to grow.

If I may add to that, the other part of your question, Jim, is with respect to SSD even within notebooks, we are very strong in SATA based controllers.

We have that product.

So, to some extent ,we are agnostic when that transition happens, whether somebody buys a drive and we sell a PC controller into a drive or we sell an SSD that likely will have SATA based stuff, we are very, very strong in that space, and I think we will fare very well if that part of the transition happens.

I think maybe I forgot to mention.

If that happens, if there are more SSDs sold because we have very strong presence in the controllers on the SSD side, the fact that the SSD controllers are sold at a higher price than the HDD controllers, the net effect actually we'll be in a better position.

Thanks very much.

Thanks, Jim.

Thanks, Jim.

Your next question comes from the line of Chris Caso of Susquehanna Financial Group.

Please proceed.

Hi, thank you.

I wonder if I could follow up to an earlier inventory question and just make sure I've got the understanding correctly.

If you could address where you think you're shipping against consumption in both the hard drive markets and the networking markets.

Do you think there's still inventory to burn off on those markets or as you go forward, should your revenue really be tracking what's going on in those end markets?

Thanks, Chris.

On the hard drive market, I think we said in the last call, the supply chain side of it we think the inventory issue has been.

So, there might have been some still on the OEM side in the PC side of it.

But even then, I believe that's pretty much worked past us and as we've demonstrated in Q3 results and our Q4 forecast, albeit with that January month, we ship to consumption.

So, short answer to the drive side of it is we believe the inventory is behind us and we're back to consumption levels, whatever that translates to.

On the networking side, that's more recent, and it's hard to say because it's a bigger, longer, I think more complicated supply chain, so it's hard to say where we are in that thing.

But I think I said earlier that I believe that partners in that space are reacting very well, so I don't think it's going to be very long.

But it's hard for us to say exactly where we think we are in that cycle.

Okay, that's fair.

As a follow-up, is there any update you could provide us with what's going on with China Mobile now and your design engagements with them?

Okay.

So, I guess the question's related to the TBS CDMA single chip communication processors for the smart phones.

So, that's going actually very well.

The first customer, there will be a -- the first customer, they will be a first customer starting shipping this quarter and with the rest expected -- we expect the rest to be shipping in the next half a year -- the first half of next year.

So, various different customers, obviously.

Great.

Thank you.

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

Please proceed.

Can you hear me?

Yes, Uche.

Okay.

Let me just -- probably as a follow-up to Jim's earlier question about how the tablet market impacts you.

Can you talk about any traction that your mother chip could be having on the tablet market.

You talked about so many SKUs of tablets that will be coming.

Any comment at all as to Marvell's positioning in that market?

And I have a follow-up.

Okay.

So I can (inaudible).

The second part of the ARMADA devices are targeted for the tablet market, with also a certain portion of the products that we built for the ARMADA families targeted for set-top box, Blu-ray player, okay, application processor for the TV, as well as for other smart display type applications.

So, if you look at the family of those products, we have -- really, you can see they're targeting for consumer, consumer grades types of devices that drives web types of services, as well as providing HD videos, HD audios and 3D gamings capability.

So, the -- this is a newer part of our target market, but we are very excited because this is -- it's a huge market opportunity for the future growth of Marvell.

The only thing I'd add Uche, as you very well know, the tablet market as shipping today is dominated by one Company and the supply chain for that is well-documented.

I think this is an opportunity ahead for us, and I think we're comfortable that we have designs that should come to market next year, and I think we'll improve our hand as the future unfolds.

I also forgot to mention, maybe I should mention a little bit, and also in certain parts of the tablet market where they need the built-in modem functionality, we're also well positioned because we have integrated communication processors there that also can be used in that market.

I see.

Okay, that's helpful.

Clyde, let me just ask you about -- I think it was something you had said in fiscal fourth quarter when you provided medium to long-term revenue KEGR for the company.

I think it was something in the order of 20% to 25%.

As we start to look at in the risk factors in the business today, is that something you're willing to reiterate?

And if that's the case, as we look down to the future, can you kind of help us walk through where the most significant revenue growth opportunities for Marvell will come from?

Without providing specific guidance, just how we should think about the medium to longer term growth outlook for the company.

I think we said that we usually provide that business model at the beginning of the quarter, so we'll do it on the next call.

Last one was about nine months ago.

We haven't changed on these three year growth models.

We haven't changed our views on it and shouldn't do that in any given quarter whether it's a good quarter or not so good quarter.

So, we still believe that's the right target model for us, and we believe we are tracking to that, and the areas where it would come is still the same.

We expect all three end markets that we serve and plus a fourth emerging one, we call it other, but there's a number of products in there.

We expect all of those to contribute to the top line.

So, I don't think anything else changed, nor would I encourage any investor to think that we've changed any of the view.

You shouldn't change -- those views are long-term.

We shouldn't change it.

We don't manage the business on a quarter basis with respect to our long-term models.

Okay sure, fair enough.

And just one last question.

Your inventory was down this quarter, which if we looked -- if you're looking to the channel, any commentary you can make about inventory and other aspects of platform in the networking area where obviously, what's going on is well documented.

What sense can you give us as to the inventory within storage and also within the mobile LAN wireless area, just get a sense of whether it's declining (inaudible), it's something that is reflected go forth in the channel.

Thank you.

Uchi, we tried to answer it a couple of times in the call.

So, nothing -- no different.

I think on the storage side or the drive side, I think the inventory is well behind us.

We ship to end markets.

Networking, same comment as before.

It's still early and complicated food chain for us to predict.

So, can't give you any more color than that.

And don't see anything in mobile and wireless right now that concerns us.

I'd reiterate what we said earlier in the call.

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

Yes, sir.

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

Please proceed, sir.

Yes, good afternoon, guys.

Thanks for taking my question.

Clyde, you mentioned that your guidance for the January quarter for networking to be flat.

Was somewhat of a function of what you think's going to be a short-lived inventory situation.

But when you go back and look over the last several quarters, that business has been kind of flattish.

And I'm curious.

I know there's some of the ethernet controller on the PC side which was related to PC weakness, but what are some of the bottoms-up product cycles you guys see on the enterprise side that's going to help drive sequential growth from here?

So, we still have -- we are ramping up customers on the enterprise switches, and that, I think, will continue to grow.

We have very competitive products.

We announced, I believe a year ago-ish, some PON products and you should see that starting to ramp.

We have customer designs -- design wins in that space, and that should start ramping up next year, and those are just two examples of stuff in that space.

This end market is characterized --

High capacity, high end top to rack switches, 10 gigabits and beyond switches, 40 gigabits.

That's for next year types of revenue.

So, we have a number of good products, including which Sehat mentioned, John.

But this market, the latency period from designs to production's a lot longer than, say, a PC or consumer type market, so you can't judge it on a quarter by quarter basis.

That's helpful.

And then I guess, guys, when you look at the ARMADA relative to the guidance for the January quarter, given the design wins you guys see, could ARMADA be up sequentially?

Or just help me understand how I should think about that relative to new product ramps.

John, we don't describe within the thing by product.

And part of it is I try not to remember it so I don't inadvertently tell you, honestly I don't know.

It's trending positively, I would do that.

Some -- one of the callers earlier mentioned one of the products we are in there is doing very well.

So, it's trending positively, but I really couldn't give you any more color than that.

Great, thanks guys.

Thanks, John.

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

Please proceed.

Hello, guys.

Thanks so much for taking my call.

Just a question on your handset business.

Your com processor, your wins with RIM and China Mobile engagement are well documented.

I was just wondering if you can give us an update on your efforts with tier 1 handset OEMs outside of the China Mobile relationship.

I think it's too early to talk any specific names, but you can -- if you're talking about outside China Mobile, means outside TDS CDMA or outside --

Talking mainstream, outside of China, outside of TDS CDMA with tier 1 handset OEMs.

Any color you can give us there in terms of potential engagements or when we should kind of look to new growth opportunities.

I think probably -- it's too early to talk about it at this point (inaudible).

Okay.

And then I guess maybe then kind of following up with the ARMADA, just stand-alone ARMADA, following up with what Uche and John Pitzer said.

If you could give some color, how has that tracked relative to your expectations internally?

Have you guys been pleased with the uptake of that?

And I'm talking about specifically outside of com processors and outside of the gaming platforms.

Compared to aggressive internal expectation, obviously we are always -- usually the real life tends be slower than our most aggressive expectations.

Our conservative expectation I would say we're quite in line.

And compared to reality, so forget expectations, compared to reality, that is ramping up very well.

But as Sehat indicated, we always try to drive --

And clearly, we try -- always try to drive things to be more aggressively.

Sure.

Okay, lastly, in closing, quick question for Clyde.

Now, it's the obligatory uses of cash question.

You're coming up on $3 billion in cash.

Was wondering when you guys would revisit the share buyback or potential dividend.

Is that something more like 2011?

Or when could we expect some more news on that?

We are in the middle of a share buyback program.

Sure.

Still in the early stages of it.

So, I think the direction on that is to continue and fill that out, and we'll deal with as we get to the end of it what next to do.

With respect to dividend, it's always on our radar.

We have discussions inside the Company but obviously, nothing to announce today about it.

But we do have more and more discussions today than say a year or two about it obviously, and that's probably as much as I can say right now.

Okay, thank you very much, guys.

Thank you.

This concludes the question-and-answer session for today's call.

I'll now turn the call back over to Mr.

Jeff Palmer for closing remarks.

Thanks, Amanda.

I would like to thank everyone for their time today and the continued interest in Marvell.

As a reminder, we'll be attending several investor conferences over the coming weeks.

On December 1, we'll be attending the Credit Suisse annual technology conference in Scottsdale, Arizona, and on December 8, we'll be attending NASDAQ OMX technology conference in London, England.

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

Thank you very much for your interest in Marvell.

Bye now.

This concludes today's presentation.

You may now disconnect.

Have a good day.