Marvell Technology Group Ltd MRVL
Q2 2013 Earnings Call Transcript
Transcript Call Date 08/16/2012

Operator: Good day, ladies and gentlemen, and welcome to the Second Quarter 2013 Marvell Technology Group Ltd. Earnings Conference Call. My name is Jeff, and I'll be your coordinator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session.

I would now like to turn the conference over to your host for today, Mr. Sukhi Nagesh, Vice President of Investor Relations, and you go forward Mr. Nagesh.

Sukhi Nagesh - VP, IR: Thanks you, Jeff, and good afternoon, everyone. Welcome to Marvell Technology Group's second quarter fiscal 2013 earnings call. I am Sukhi Nagesh, Vice President of Investor Relations and with me on the call today are Sehat Sutardja, Marvell's Chairman and CEO; and Clyde Hosein, Marvell's CFO. We will all 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 We will also be posting a slide deck summarizing our quarter results in IR section of our website for investors. Additionally, this call is being recorded and will be available for replay from our website.

Please be reminded that today's discussion will include forward-looking statements that involve risks and uncertainties that could cause our results to differ materially from management's current expectations. The risks and uncertainties include our expectations about sales of new and existing products, including statements about our Hybrid, HDD, SSD, TD, TD-LTE, FDD-LTE, Wi-Fi, and PON product, statements of our general trends and the end markets we serve and future growth opportunities, statements about market shares, statements regarding our financial prediction for the third quarter of fiscal 2013, and our expectations about long-term growth.

To fully understand the risks and uncertainties that may cause results to differ from our expectations and outlook, please refer to today's earnings release, our quarterly – latest report on Form 10-Q, and subsequent SEC filings for a detailed description of our business and associated risk. Please be reminded that all of our statements are made as of today and Marvell undertakes no obligation to revise or update publicly any forward-looking statements.

During our call today, we will make reference to certain non-GAAP financial measures, which exclude the effect of stock-based compensation, amortization of acquired intangible assets, acquisition related costs, restructuring costs and certain one-time expenses and benefits that are driven primarily by discrete events that management does not consider to be directly related to our core operating performance.

Pursuant to Regulation G, we have provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures in our second quarter 2013 earnings press release, which has been furnished to the SEC on Form 8-K, and is available on our website in the Investor Relations section.

Now with that, I would now like to turn the call over to Sehat.

Dr. Sehat Sutardja - Chairman, President and CEO: Thanks Sukhi, and good afternoon everyone. Today, we reported second quarter revenues of approximately $816 million, reflecting an increase of over 2% sequentially. While this was below our initial expectations we continue to deliver good profitability with second quarter non-GAAP gross margin of 53.6%, operating margin of 17% and earnings per share of $0.24. We also continue to return value to our shareholders as we repurchased about 20 million shares and paid the Company's first quarterly dividend of $0.06 per share.

Our business was impacted by the slowing macroeconomic environment starting in the middle of the quarter. We also faced continuous challenges with lower volumes at our leading North American cellular customer while demand slowed down at our Chinese smartphone customers. In addition our increasing presence in price sensitive consumer market is modestly impacting our gross margin.

Now let me provide more color on our performance and expectations across our end markets. First, in our storage end market Q2 revenues increased by 7% sequentially. Storage now represents about 47% of revenues.

The recent macro slowdown resulted in lower PC sales in Q2 and our drive customers are now forecasting flat market demand in calendar Q3. If through, this will be the first time in history that HDD demand is flat in Q3. We believe this conservative view in today's environment is healthy for the industry as it reduces the risk of inventory buildup. However, the drive industry may have to deal with the potential for improved demand, for example as a result of the upcoming Windows 8 launch.

Beyond the near-term end demand issues, there are a number of positive things happening in our storage business that I want to highlight. First, in Q2, we continued to see strong growth for our 500 gigabyte per platter mobile drives which grew over 30% in Q2, and represented over one-third of our unit shipments. As you know, we are the only provider of this 500 gigabyte mobile technology. We increased our shipments of 500 gigabyte per platter products to a major customer for their mobile drives where we are a new supplier. We are now at about 10% of their core mobile platforms and expect our share of their mobile drives to increase over the next few quarters.

Second, we are extremely well positioned in small form factor HDDs targeting the Ultrabooks market. We saw an opportunity for such a small form factor drives as early as four years ago and subsequently started promoting 7 millimeter form factor to our customers. Not surprisingly, all the 7 millimeter drives in the market today use our SoCs. Furthermore, the industry is pushing for even thinner drives with 5 millimeter form factor that are suitable for devices such as tablets. Our longstanding investment in SSDs will be a key factor that will enable this 5 millimeter form factor HDD technology in hybrid formats.

Third, our SSD business continues to do very well with Q2 revenue growth of about 25% sequentially primarily from new customer ramps. Our SSD design win momentum remains strong and we expect multiple devices including Ultrabooks and hybrid devices to come to market this year complex with our SSD controller technology. In Q3, we expect our SSD business to grow over 25%. For fiscal Q3, we anticipate our overall storage end market to grow low-single digits sequentially.

Now, moving to our mobile and wireless end market, Q2 revenues were down 5% sequentially and this end market constituted about 27% of overall sales. This was lower than our earlier forecast and was negatively impacted as our leading North American smartphone customer shipped lower volumes even though our share as a customer increased. In addition, revenue from TD smartphone customers in China declined due to slower than expected demand and increased competition, which I will address shortly.

However, our TD revenue from customers outside China continued to grow. Overall, we expect our TD revenue for the next three to six month period to be muted as the effects of the micro continues and as we refreshed our product line. Now, I would like to address the competitive landscape in mobile. As you know consumers are now transitioning to low cost smartphones at a much faster rate than in the past. We saw this transition coming early and subsequently over the past year, invested in developing our next generation unified 3G platform to address both the TD-SCDMA as well as the WCDMA markets.

We announced these highly differentiated new platform earlier this week. This platform includes a TD or WCDMA modem, a high-performance 1.2 GHz dual core processor, powerful 3-D graphics, Wi-Fi, Bluetooth, near field communications, GPS, RF, power management and more. We will be sampling this new platform to customers this quarter. In comparison today each of our main competitors currently address the TD or the WCDMA markets with obviously completely different platform. With our platform to pin-to-pin compatibility, our smartphone customers can leverage this same printed circuit board, handset design, operating system and application software to build high-performance, yet low-cost TD and WCDMA smartphones with a single design effort.

We have already received excellent feedback from our customers on this unified platform strategy. To further strengthen our competitive position in this market we're also now working on extending our platform to include TDD as well as FDD-LTE 4G technology. You should expect us to sample the incomparable 4G platform solution to our customers early next year.

In summary, for mobile we have a strong upcoming product offering and as we build our product portfolio we expect our existing and new customers to introduce new smartphones with Marvel solutions.

Now moving to wireless connectivity we continue to make solid progress with the introduction of our next generation Combo device. This device is the industry's first 2x2 combo that integrates Mobile MIMO 802.11ac Wi-Fi with other cutting edge wireless technologies, such as Near Field Communication and Bluetooth 4.0.

This latest addition to our connectivity product family includes immense power management and is designed specifically for consumer electronic devices and mobile computing platforms such as tablets and Ultrabooks. We have already excellent customer engagement for this product and expect to see consumer electronic devices with this technology in the market early next year.

In the near term, we expect our attach rates for our connectivity into tablets and Ultrabooks to notably increase as customers bring new products to market with our leading Mobile MIMO 802.11m Combo solutions.

Elsewhere our embedded Wi-Fi solutions continue to do well with market share up over 75% of printers and game consoles. However, consistent with what we're experiencing in the PC industry we expect demand to be weaker than seasonally typical in Q3.

Moving next to some of our newer initiatives; in Q2, Sony and Vizio, two leading OEMs have started to slip Google TV platform based digital media adapters, powered by our high-performance Armada 1500 SoC, incorporating a dual-core custom CPU with PC like computing power and advanced video processing technology. Our proprietary Qdeo video post processing technology can handle multiple video sources and formats that effectively reduces the noise and artifacts associated with the video signal, while at the same time enhancing the picture quality.

As a result, this device enables superior quality web browsing and high-definition streaming on large screen devices, and is already designed into multiple new connected home platforms that include the digital TVs, set-top boxes and media players. We're really excited about our opportunity in this developing market.

Overall, for fiscal Q3, we expect our mobile and wireless end market to decline mid-single digits sequentially due to continued smartphone demand weaknesses in North America and near-term favorable demand and competitive trends in China, as well as subdue seasonal demand in gaming systems and printers that use our embedded Wi-Fi solutions.

Finally, turning to our networking end market, Q2 revenue grew 4% sequentially and was in line with our earlier expectations. Our revenue growth was better than the overall end market, which grew only 1% sequentially. The networking end market represented about 22% of our total revenue in Q2. Our networking business continued to outperforms the market due to growth in our new products, including PON, 10-gig switching, network processing, Powerline Communication or PLC and low power server processors which collectively grew about 25% sequentially. Let me expand on these new products.

First, our leading PON, products continued to do very well, growing over 30% sequentially in Q2. As a result of this growth, we have increased our share in the PON market to roughly 30% currently from basically 0% last year. We continue to be the only supplier, a commercial supplier of highly integrated Universal PON solution addressing both the GPON and the EPON markets thereby directly translating into lower operating cost for Telco carriers.

In addition, we are also expanding our PON silicon into new areas such as fiber to Ethernet, media converters and high-end com gateways. With the full family of PON product offering, our competitive positioning continues to be enhanced. Second, our network processors are already getting significant traction with Tier 1 customers and revenue grew over 15% sequentially in Q2.

Traditionally, network processors have seen their largest demand in the core of the infrastructure. The explosive growth of the Internet bandwidth has now driven the demand for intelligent network processors to the edge of network. Consequently, we are seeing new obligations for our highly programmable processors in segments such as mobile backhaul, access and data centers. We're seeing significant (benefaction) of our network processor solution at customers such as Ericsson, ZTE, and Huawei.

Lastly, I would like to highlight one of our new product family's serving the server market. In Q2 Dell and Mitek introduced the industry's first ARM-based servers, which are powered by our quad-core Armada XP Processor running at 1.6 gigahertz and comes with a 40 bit Large Physical Address Extension or LPAE that can adequately handle server class data sets, meaning large data sets.

Marvell is the first chip supplier to bring to market an ARM-based server with a solution that has the same far IO transaction performance benchmarks as the current x86-based solution in the market, while achieving double the storage density in half the space. This solution effectively addresses certain segments of the server market like the web servers, which are moving away from compute function and SILO to a system that integrate networking functions like load balancing and storage into e-converge element.

We already have multiple design winds for this product at North American customers and also starting to see good tractions at key customers in China. For Q3, we expect our overall networking End markets to grow low-single digits sequentially, driven by the new product areas.

In summary, while we faced unexpected demand headwinds in Q2, we continue to deliver growth in our storage and networking end markets through share gains and new product ramps. We are gaining share in HDDs and ramping up our SSD products at Tier 1 customers. We are increasing our footprint in networking new areas and performing better than the end market as a whole. We acknowledge the near-term challenges we faced in our mobile end market and are investing in new and exciting products to grow in the future. In the meantime we continue to deliver shareholder value through our share repurchase and dividend programs.

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

Clyde R. Hosein - CFO and Secretary: Thank you, Sehat, and good afternoon everyone. As Sehat mentioned, we reported revenues for the second quarter of fiscal 2013 of $816 million, representing a 2% sequential increase, and down about 9% from the same period a year ago. This shortfall in Q2 was distributed roughly equally between storage and cellular revenue.

In storage as Sehat mentioned earlier, lower PC sales resulted in our drive customers reducing production during their June quarter which impacted our revenue in our July quarter. In cellular we experienced demand weakness at our North American and China based smartphone customers, as well as increasing competition for TD smartphone.

Our non-GAAP gross margin for the second quarter was 53.6%. Our overall operating expense for the second quarter on a non-GAAP basis was $298 million. R&D expenses for the quarter were $241 million and SG&A expenses were $57 million. This resulted in non-GAAP operating margin of 17% for the quarter. Net interest expense and other income was about $6 million and our tax expense for the quarter was approximately $3 million.

This resulted in non-GAAP net income for the second quarter of $142 million or $0.24 per diluted share. The shares used to compute diluted non-GAAP EPS during the second quarter were (587 million). Cash flow from operations for the second quarter was $189 million, as compared to $199 million reported in the previous quarter. Free cash flow for the second quarter was $174 million, compared to $178 million reported in the prior quarter.

Let me now summarize our quarterly results on a GAAP basis. We generated GAAP net income of $93 million or $0.16 per diluted share in the second quarter, compared to $95 million or $0.16 per diluted share in the prior quarter, and $192 million or $0.31 per share in the same period a year ago.

The difference between our GAAP and non-GAAP results during the second quarter was mainly due to stock-based compensation expense of $33 million or about $0.05 per share, and about ($16) million or $0.03 per share related to amortization of intangible assets, acquisition related and restructuring expenses.

Now, I'd like to review our balance sheet as of the end of fiscal Q2. Cash, cash equivalents, and short-term investments were $2.1 billion, a decrease of $68 million sequentially. During the second quarter, we repurchased about 20 million shares for approximately $250 million. Over the past eight quarters, we have repurchased and retired 127 million or about 19% of our outstanding shares.

Also in the quarter, we initiated the payment of our first quarterly dividend of $0.06 per share for a total of $34 million. We expect to pay out next quarterly dividend of $0.06 per share on October 4, to all shareholders of record as of September 13th. Accounts receivable was $391 million, down $27 million sequentially. DSO was 45 days, compared to 47 days in the prior year.

Net inventories at the end of the second quarter were approximately $346 million, down $8 million from the previous quarter. Days of inventory were 83 days, down from the 88 days reported in the previous quarter. Accounts payable were $335 million, an increase of $12 million from the prior quarter.

Now, I'd like to turn to our outlook for the third quarter of fiscal 2013. We currently project the third quarter revenues to be in the range of $800 million to $850 million. At the midpoint of this range, this represents a modest 1% growth rate. This growth rate is well below what is our typical historical seasonality and has been due to the combination of a poor macro environment and cellular customer declines.

Our forecast largely reflects our customer's view of near-term flattish demand environment. By end-market, we expect our mobile and wireless end market to decrease mid-single digits due to continued demand weakness at smartphone customers. We expect our networking end market to grow low-single digits in Q3 due to continued new product growth and share gains.

Finally, we expect our storage end market to increase low-single digits sequentially, with double digit growth for our 500 gigabyte category by HDD mobile platforms and SSD controllers. For, HDD in particular, we are projecting a couple points of share gains in an otherwise conservative flat plans.

We currently project non-GAAP gross margins to be relatively flat at 33.5% plus or minus 50 basis points and currently anticipate non-GAAP operating expenses to be approximately $300 million plus or minus $5 million. We anticipate R&D expenses to be approximately $245 million and SG&A expenses of approximately $55 million.

At the midpoint of our revenue range, this should translate to a non-GAAP operating margin of approximately 17% plus or minus a point. The combination of interest expense and income together should net out to approximately a $2 million benefit. Non-GAAP tax expense should be approximately $2 million. We currently believe the diluted share count to be approximately 580 million shares. This share count does not reflect any share repurchases we may undertake during the quarter. Taken together, we currently project non-GAAP EPS to be about $0.24 per diluted share, plus or minus a couple of pennies.

On the balance sheet, we currently expect to generate about $125 million in free cash flow during the quarter. We expect our cash balance to be about $2.2 billion, exclude any special items M&A activity or continued share buyback. We currently expect our GAAP EPS to be lower than our non-GAAP EPS by about $0.08 per share plus or minus a couple of pennies. About $0.06 of this is related to sock-based compensation expense.

Before I close, I would like to summarize our call today. As with many companies, we’re affected by the sluggishness in the broader global economy and slower demand particularly in the network, despite this we continue to generate good profitability and continue to deliver shareholder value. We are managing and focusing our investments to areas of growth, which we expect to bear results over time. In storage, we expect to grow share in our core HDD business and expand our opportunities in the growing SSD market. We expect our networking business to continue to do well, driven by new products and share gains.

Finally, while we are experiencing near term headwinds in our Marvell end markets, we continue to be focused on bringing new products to market to take advantage of growth opportunity to the future.

With that, I would like to turn the call over to the operator to begin the Q&A portion of the call. Jeff?

Transcript Call Date 08/16/2012

Operator: Doug Freedman, RBC Capital Markets.

Doug Freedman - RBC Capital Markets: Sehat can you go into the storage market for us and can give us a sense of what your outlook is from a total available TAM I mean it sounds like you guys are planning on growing the business through share gains, what do you think the overall market does, because at some point share gains are going to bottom out or reach a maximum peak for you and how should we think of your storage business going forward?

Dr. Sehat Sutardja - Chairman, President and CEO: The key takeaway from our storage business – the key drivers for storage growth or storage business at this point and moving forward is to address the small form factor, TAM form factor drive, model drive is what I meant. So as we said earlier that we are the only supplier of the 500 gigabyte of platter mobile drive and today its only what 30% or so of the shipments of the industry of the drives in this storage capacity and we expect that to grow to close to 100% maybe in a year or so as the industry as usual moves to the next next-generation capacity. So this is the growth factor. This is what we talk about share gain from our compared competitions even in the mobile space where our competitor had a large market share in one of the customer in the old capacity point 320 gigabytes. So, that's one area. The other area is as I mentioned earlier our investment in hybrid -- while our investment in solid-state technology. As you know, we've been investing in developing solid-state technology for like six, seven years already. One of our plans from very early on is to utilize this technology to enhance, to supplement the hard drives to incorporate SSD as hybrid in hybrid form factor. So this is a very important technology that we are working on together driving this technology, especially in the – even thinner form factor like the 5 millimeter form factor to address a very extremely high capacity like – to start with 500 gigabytes and even high capacity later in a next couple of years. While at the same time, having the performance of solid-state meaning like, instant on instant response time, so a high bandwidth in hybrid format. So this is the business. You mentioned about share gains, share gains is one, but more importantly we do believe that as the industry able to build – as the industry introduce this hybrid ultra thin form factor. These devices will not – will be used not just for the traditional PCs, but also for form factors that you think, okay, will not be the territory of hard drive. What I mean by that is like tablets. I don't know is anything else you want to add?

Clyde R. Hosein - CFO and Secretary: No. So I think to summarize. I think for the near-term the share gains, but overall TAM I think the industry is moving to higher capacity, especially as people put video, our foundry gig per platter addresses that very effectively and thinner form factor – as Sehat mentioned how to differentiate 7 millimeter and position very well for 5 millimeter. So, I think we'll grow beyond share gains very well with new technologies in the industry.

Dr. Sehat Sutardja - Chairman, President and CEO: Do you have a follow-up?

Doug Freedman - RBC Capital Markets: I guess do those new technologies come at a higher content are you capturing more content per unit shipped with these newer technologies?

Dr. Sehat Sutardja - Chairman, President and CEO: Yes. You're talking about hybrid, okay, the solutions are quite a bit more complicated, but in integrating hybrids into SSDs into HDDs, okay and regardless we will increase the cost, we still significantly reduce the cost compared to putting those solutions on a two separate PCBs or two separate PCBs or two separate form factors.

Operator: Sanjay Devgan, Morgan Stanley.

Sanjay Devgan - Morgan Stanley: First question I just wanted to focus on the mobile and wireless business. I think you specifically talked about weakness at your large North American customers, as well as macro concerns around the TD opportunity in Asia. If we're just going to focus specifically on the TD opportunity, I was wondering given the outlook for that business into the back half of the year, how much of it would you kind of ascribe to kind of the general macro weakness that you guys had alluded to versus kind of the share dynamics coming in with the new entrants coming into the market, and if you could just kind of give us your latest thoughts in terms of your positioning and share outlook as we exit the year in the TD market, that would be really appreciated?

Clyde R. Hosein - CFO and Secretary: It's hard to differentiate how much of it is going to be macro effect or not, just to recap where we were before the effects of this macro is China Mobile had indicated TAM for TD smartphones going from 12 to 13 million, that pace so far hasn't lived up to that, so now we speculate on how much of that will happen in the second half and I think given the uncertain we see it's hard to see that. It's hard to predict that with any level of accuracy. To answer your question on share we still – we ended up in the June quarter, albeit in a subdued overall end market at over 60% share there this one particular competitor – that's very price sensitive and as we indicated earlier we addressed it, but obviously there is a limit to it. So effective that strategy is going to be our products still believe our performance in our existing products more better performance than the new ones, so it's a smaller price gap, but now you looking at price versus performance, so I think that needs to play out probably in the next three, three plus months to get a better handle on that.

Sanjay Devgan - Morgan Stanley: Then I guess just as a follow up, just wanted to touch on margins at 53% and change, we've talked about kind of getting back to 55%, 57% range. I was wondering if you could kind of talk about the foundry diversification efforts, remind us where we are and how do you think that kind of impacts margins go forward that versus mix, any thoughts there would be greatly appreciated.

Clyde R. Hosein - CFO and Secretary: So we're already at one of the three additional foundries bringing up we already shipping in volume quantities from that foundry already in Q2, that will continue to ramp up as the year goes on, we expect to – we qualify the second if three new foundries, quantification has happened, new products should come out of that in next year these are more networking type products and then we begin to qualify the third one in the next quarter. So, I would say through diversification is on track. It's a long process as you know, once you qualify the foundry which is in itself long, you got to catch that on new products because customers generally don't want to re-qualify going backwards.

Operator: Glen Yeung, Citi.

Glen Yeung - Citi: Can you guys describe your position in the (white phone) market in your China mobile opportunity sort of where are you in white phone relative to branded phones in that market and what's your concern that the white phones are going to gain share over the branded at the price points at which you're participating?

Dr. Sehat Sutardja - Chairman, President and CEO: It's hard to say. It's a very fragmented market as you very well know Glen. I would tell you our devices today is in north of 80 devices. So, a different phone devices are there so I think we've got good presence in that space. How successful white block smartphones is going to be I think is still undetermined at this point, but I think our presence in white phones is in pretty good shape.

Glen Yeung - Citi: Secondly obviously it's a tough environment now in this handset market and I sense well it gets tougher as time goes by. What are the factors that Marvell considers to decide whether or not you want to stay in this business?

Clyde R. Hosein - CFO and Secretary: We definitely see there is business. As we said earlier we just introduced our second-generation platform solutions for this market. This platform is the first time in our history that we combine – basically we integrate either TD CDMA modem technology or TD or WCDMA technology. So not just – which are actually provided quite – is pretty advanced to address very high volume yet price sensitive market. So, I guess you can say that, okay, maybe in hindsight that we should have done this a year earlier where previously we had two different platforms, one platform for the TD and the other platform for 3G. So, we found out okay it's hard to split our resources like one resources addressing like what Clyde said 80 different handsets being manufacturers in the TD and it's hard for those customers to move to the 3G solutions, while busy working on the TD solutions, but it's all behind us. From now on our platforms are based on single platform. Our TD, our modem, our 3G model technology is superior is because they are used by a leading edge North American smartphones customer. So, now with this platform our customers are able to build – to put the efforts – one time effort, in fact most of the effects comes from us as well. We provide all the OS supporting, the video supporting, the graphic supporting, the camera, the touch screen supporting. We provide all of those things in a turnkey solutions. We only do this because we are serious in this business, because those are huge investment from us. It's actually to invest in this platform takes more resources than building the chip alone, building chip actually is a small part of the cost of getting to this business. So, we're already successful on our first-generation platform and we are confident that our second-generation platform will be even more successful especially now we address not just the TD, okay, we also addressing the 3G market and as we move to the third-generation platform early next year with LTE, okay, will be even stronger because by that time our platforms will be even -- our third-generation will be way more mature and combining with our advanced signal processing modem technology to address the LTE. So, okay, we are very, very serious in this business. This is up to all this is the biggest market of semiconductors in the world. We cannot blink. We will not step back for any reason.

Operator: John Pitzer, Credit Suisse.

Ryan Carver - Credit Suisse: This is (Ryan Carver) in for John Pitzer. Can you talk a bit about -- a bit more about your hard drive business specifically around your largest customer? I mean it seems like based on recent quarter unit shipments that they are back to normalized levels, if we look at hard drive revenues from you guys obviously they were down year-on-year on April, but it looks like down double-digits year-on-year for July and guidance is for sort of new double-digit year-on-year declines again. Can you talk about some of the dynamics there if these guys are back to sort of normalized hard drive shipment unit levels, is it share loss, is it price erosion, can you talk a little bit about that please?

Clyde R. Hosein - CFO and Secretary: Not share loss by Marvell, and I think both the two biggest players and customers in the space have indicated slowdown and I think a lot of the PC (indiscernible) the same thing, so they have indicated flat TAM, both of them from August and September that's highly unusual I think if you look back into the history of this industry that it's going north of 10% so it is unusual and obviously surprising to us but as far as the disconnects to them goes between the price you are going to have to ask them, that question I don't think is appropriate for is answer that, but with respect to Marvell it's actually share increases as we discussed earlier, that is no share, at any particular customer I don't think there is any meaningful share erosion anywhere.

Dr. Sehat Sutardja - Chairman, President and CEO: Maybe I want to add, our customers have mentioned in their earning call like a few weeks ago, so at the end of their quarter, they slowed down there happens to be name, right at the middle of our quarter that because our quarter is about one month off of their quarter.

Clyde R. Hosein - CFO and Secretary: So, we've got some other timing issues and of course we have got one month on the other hand in October and there is not a lot you can count on or predict right now in that quarter. Ryan you have a follow-up?

Ryan Carver - Credit Suisse: Yeah, just going over to the wireless side of things, I think Glenn asked the question about wide phone, can you give us your thoughts on how you thing the market in terms of unit is going to split between sort of branded high-end phones and sort of the white phone low end market and sort of how much of that market you expect to be able to address with the more high end solution and then the size of market you plan on addressing with more lower cost device and maybe how that will impact your expectations for gross margins going forward if we assume that sort of lower end higher volume is going to be at a lower margin profile?

Dr. Sehat Sutardja - Chairman, President and CEO: Maybe I'll just address it a little. In my view knowing what this thing looks like what the solutions especially our second-generation solutions coming out, the unified platform two devices that we just introduced these are low cost devices yet at the same time we have saw very high performance, the dual-core 1.2 gigahertz processor very powerful graphics. So these devices in the case are used not just for – when we say low cost it means that it's not just low cost, but it's very, very high performance so the way we look at it is that knowing what these things are capable of these are the devices that could be – they are very attractive for the Tier One – for the OEMs and also very attractive for the white goods guys. So the differentiation between the white goods and the Tier One OEM guys will be the industrial design. It will not be in the software, because the software is going to be unified also, okay, will be standard operating system, standard TD or standard graphics there differentiation will be who can procure a better LCD screen or better particularly in or better plastics or better industrial sexiness of the design. So because of that you could argue that some of that the OEMs will probably still have an advantage in this area in getting maybe better pricings on this high-resolution LCD screen. The silicon is capable to run either lower resolution screen all the way through – okay, beyond (PEN ADP) screen. Even the video is capable of PEN ADP. So, it's just a matter of customer whether they want to pay for the expensive screen or not. The mobile – I mean the white good guys probably will focus this solution more on the lower price, lower resolution screen markets and the big boys will target for the higher resolutions sexier markets where they can charge somewhat higher price. So, the white groups maybe will have more like to share and replacing their feature phone markets with feature phone customer. For feature phone customer they want to move to a smartphones and the OEMs guys will target the mobile to do customers.

Operator: Harlan Sur, JPMorgan.

Harlan Sur - JPMorgan: On TD in the near-term, I mean obviously it seems like the competition has sort of closed the gap very near-term. I guess what the market is trying to figure out is how is Marvell planning to maintain a sustainable competitive advantage in the TD market, so you can sort of mitigate this leapfrogging of market share from one quarter to the next. I think that what the team is trying to tell us is that it's going to be based on performance differentiators, things like your dual core platform, TD-LTE I guess when should we expect these differentiators to sort of translate into sustainable growth for Marvell. It seems like from what you're telling us today we have to wait till next year, but can you just give us some color around that?

Dr. Sehat Sutardja - Chairman, President and CEO: Well, as I said earlier, in hindsight, okay we should have migrated to our platforms to unified platform. We've been in this business only for six years and to maintain two different platforms at the same time was very tasking for us, a part of reason that, you see this issue of this leapfrogging, because we've been busy spending our time unifying our solutions so that from now on we do not have to deal with two platforms. From technology point of view, everybody knows that we have superior technology. The customer knows about it, the carrier knows about it. It's just that when we have to battle two battlefronts one is 3G and the other one is TD, we have to split our resources in the past. Now, moving forward, we can unify these resources to battle one battlefront and as talking about with respect to our revenue growth, in the past, we're only just addressing the TD for this platform solution. Now, of course, everybody knows that the bigger market is actually the 3G. So, now that our 3G solutions can drive on the platforms that we have developed for the TD and so that we can address the bigger market opportunity for smartphones and then as even the next step or the third generation circuit of this platform we will address – we also accelerating the deployment of LTE, so the LTE will be addressed not just for – actually addressed mainly initially for the developed markets versus the developing markets, so this is another area that we have been absent in the past especially I am talking about platform solution, so all of these things we believe will give us the platform so to grow the revenue, and develop as well.

Harlan Sur - JPMorgan: I've got a follow-up. So as we have seen the first wave of Ultrabook platforms being ruled out, it's kind of interesting to see that dual drive form factors are showing up to four hybrid drive architectures, however I do think that your customers will start rolling out hybrid drives in the second half of this year and certainly it will be more off the 2.5 inch mobile drive next year, can you just talk about your controller share in hybrid drives, is it as high as high their overall HDD market share?

Dr. Sehat Sutardja - Chairman, President and CEO: I think in the merchant market SDD controller, I do believe our market share either equal or higher than the probably higher, if I have to guess probably higher, but I say at least equal to over market share in the HDD business.

Operator: Ross Seymore, Deutsche Bank.

Bob Gujavarty - Deutsche Bank: This is Bob Gujavarty for Ross. Just to touch on the SSD space a little bit. Can you talk about today where your exposure is mostly is it the client SSDs the cash in solutions do you have any enterprise exposure and maybe also I know you can't mention customers, but the merchant market could you breakdown I think Samsung still uses internal solutions but the other ones use merchants. Can you breakdown the merchant versus captive market for us just quickly?

Dr. Sehat Sutardja - Chairman, President and CEO: So I think of the five plus guys one I think you mentioned uses captive everybody else uses merchant. To the first part of your question most of our revenues are on the client side and we think that's where most of the revenue growth is. We do have content on the enterprise side and that's how we started off with SEC several years ago but the growth opportunity is in the client side. So most of the growth we describe is on the client side.

Bob Gujavarty - Deutsche Bank: Just a quick follow-up on the wireless side. So does this WCDMA solution is that intention to open up the 3G market for you or is that something that was necessary just to kind of protect your TD position I was just trying to think as if this is an offensive move or just a defensive move on your part?

Dr. Sehat Sutardja - Chairman, President and CEO: We always wanted to do this for a while and this is the first time in our history that we're finally able to pull all the resource necessary to put okay both the 3G and the TD into a single platform and we have to do this anyway, because when we move to LTE we have no choice but to have a single platforms, the stake is just too high to have multiple platform. So, you can call it offensive strategy, but this is the plan that we have for quite a well already, and this is just -- the first result is what we introduced just a few days ago.

Operator: Craig Berger, FBR Capital Markets.

Craig Berger - FBR Capital Markets: Within the wireless piece of the business, can you help us understand how much is discrete or combo connectivity versus the TD business maybe versus the all other cellular bucket?

Clyde R. Hosein - CFO and Secretary: Craig, we don't break that downs. What we move into as we had described there is more platform solutions. So, all of our TD products and when we refer the TD is a platform solution that includes the modem and apps process on a single chip product along with the RF PMIC and then the connectivity devices. So, it's all included in that. The industry is moving. There is a few customers and they are notable customers, but the industry is moving more to complete solutions. So, I believe over time other than some isolated customers, people will move to solutions where your attach rate is with the complete solution. Other than one of our customer, well not (modem customer), our attach rate in all of our CPs is close to 100%. So, we don't break that out this prudently.

Craig Berger - FBR Capital Markets: You mentioned that North American customer, you guys used to tell us about 7% or 8% of revenues, how would you characterize that going forward?

Clyde R. Hosein - CFO and Secretary: Lower.

Dr. Sehat Sutardja - Chairman, President and CEO: Anything elsewhere?

Clyde R. Hosein - CFO and Secretary: No, I’m not trying to be smart. It's difficult to predict where some of the stuff is going

Dr. Sehat Sutardja - Chairman, President and CEO: No, we'll -- I'd say we'd like to look, okay it's not -- we should not look down at people when they are in trouble. We do have high hopes that they will recover and to be part of their future. So, but our solutions – now, our solutions are unified, we can address not just the Asian markets or the European markets, but also the existing North American customers, so at least this will be good for us. They are returned to back to health. We can only benefit from there.

Operator: James Schneider, Goldman Sachs.

James Schneider - Goldman Sachs: Maybe to follow-up on the gross margins I know you talked about the fab diversification, but in terms of mix of business, how much should we think about your ability for gross margins to go up say over the next four to six quarters to expect 200 basis points more or I mean how should we think about the overall mix of your business and your ability to improve cost within that leading to gross margin expansion going up in the foreseeable future?

Clyde R. Hosein - CFO and Secretary: Jim, in spite of the erosions we have in the last year or two, our gross margins today is still in the top one, two or three of our peer groups, so it still amongst the best. In terms of predict in the future, it's difficult to say where our growth revenues especially particularly in this environment. So, I could only speculate I know intrinsically we are doing a number of things including foundry we described earlier, including moving from gold to copper those things will improve intrinsically our gross margins but how much one of our end markets grow versus another is difficult to predict, I think it was difficult to predict last quarter it's difficult to predict going forward.

James Schneider - Goldman Sachs: Then maybe as a follow-up, maybe can you talk a little about your capital allocation thoughts at this point; clearly you have done very well in that front, you bought back a lot of stock, but you still have the capacity to buy back a lot more or potentially increase the dividend so can you maybe give us an update on your thoughts around that strategy and how you balance buyback versus dividend right now?

Clyde R. Hosein - CFO and Secretary: Jim our track record I think demonstrates what it is, we have returned value mostly through buybacks, but we initiated dividend and obviously we tend to continue doing that. So I think we look at it from time to time, we know what the tools are and we intend to use the tools from time to time as we see fit.

Operator: Blayne Curtis, Barclays Capital.

Blayne Curtis - Barclays Capital: I have got questions on the wireless business may be want to follow up there a little bit more, the WDMCA market arguably is competitive than TD, so just trying to understand you didn't talk much about – the focus has been on China and Asia, can you talk about I appreciate the optimism with the North American customer, but indications are probably they shrinked more, obviously outside Asia it could be less competitive, your progress there and just how you look at the investments in those business, is it profitable the investment?

Clyde R. Hosein - CFO and Secretary: WCDMA market is more competitive, that's actually is good because it means that the market is bigger, so we don't have to be shy from going to a market where the market have more players going after all – after all we have very advanced WCDMA technology and if you look at the difference between WCDMA and TD-SCDMA really there is hardly a difference in die size for example, in fact in our platform it's exactly the same die size because we want to make it exactly the same footprint compatible as maybe part of it, we want to have the same features, we want to have the same graphics, we want to have same video, we have to have same camera processing technology, we want to have same dual core. So, the key is not to be a competitive or more competitive or less competitive, the key is we've already spent the voice porting, the video porting, the graphics porting. These are such earlier – these takes, -- the vast majority of our expense in going into the business. So, if we already built those – we already spent those resources, anything that we go – if we go after the 3G market, the WCDMA market, it increase our TEM significantly without adding extra resources except for doing the final patch up IOT qualifications, when the handsets are built, but if the market is so much bigger, okay the (indiscernible) to get more revenue, more profits out of the same investments.

Sukhi Nagesh - VP, IR: Blayne, you have a follow-up?

Blayne Curtis - Barclays Capital: Maybe just for Clyde on the gross margin just from the guidance flat, it seems like you should get a benefit with mobile and wireless being down in storage and networking being up, am I misreading that?

Dr. Sehat Sutardja - Chairman, President and CEO: Our range has plus or minus half a point, so let's see how it plays out.

Operator: Srini Pajjuri, CLSA.

Ryan Goodman - CLSA: This is Ryan Goodman for Srini. This has asked a little bit earlier, but I am still not entirely clear. On the WCDMA, I know you guys had made some decent progress in some of the lower cost smartphones out there earlier in the year. I understand the longer term strategies is with this unified architecture with the TD and the WCDMA going forward. I guess what I'm unclear is like as I look out over the next two to three quarters maybe can you talk a bit about how we should be expecting the business to track and any opportunities there, and then also just help confirm when we should expect the more unified technology products to start ramping and coming to market?

Dr. Sehat Sutardja - Chairman, President and CEO: Being the quite the statement that you alluding to about earlier customer on the WCDMA, those who are on our previous from existing platform that we inherited from the Intel days. Moving forward, every customers that we have moving forward will be on a single platform that we just announced earlier this week. So, okay with regards -- we already have the opportunity. We already have running soft market. All the OS running already, making phone calls, so we'll be sampling that platforms this quarter to a number of I don't know customers and by next quarter, we'll ramp up to a lot more customers that we have. So, in terms of what we've of course we have I hope that with this new platform strategy. We will have a lot more 3G customers as a result.

Ryan Goodman - CLSA: Then follow-up kind of a similar question the more on the storage side. Again, I understand the long-term strategy with the SSDs and the hard disk drives going to more hybrid solution leveraging both technologies integrating them. As I look out to the next couple of quarters maybe two or three quarters, if the Ultrabook of this generation ramping. It sounds like you have decent exposure on the hard disk drives side. In terms of solid-state drives I know you guys have a decent share there in the merchant solutions both channel Ultrabooks everything. Could just talk about the strategy over that near-term phase before the hybrids really gain that much traction?

Clyde R. Hosein - CFO and Secretary: I think the results and the forecast speaks (indiscernible) Ryan. Earlier we said SSD grew 25% quarter-over-quarter in Q2. We expect that to grow again 25%, better in Q3 as some of these Ultrabooks come to market. These are growth driven by Ultrabooks. So, I think we have good presence in that space and as you see more of them come to market, I think you'll see our revenues reflect, so 25% and 25% is pretty good traction and it reflects what you're asking.

Clyde R. Hosein - CFO and Secretary: I guess I would also add, it's not a reason why people that build their own flash, people to have flash – plus manufacturers, that wants to go to this business. After they evaluate all the available SoC technology in the market we are clearly kept the best, kept the best SoC solution in the market. So, this is the reason growing 25% last quarter and also going to grow again 25% the next quarter.

Sukhi Nagesh - VP, IR: With that I'd like to close. I would like to thank everyone for their time today and their continued interest in Marvell. We look forward to speaking with you in the coming months. Thank you and goodbye

Operator: Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a wonderful day.