Marvell Technology Earnings Call Insights: Storage and Seagate

On Thursday, Marvell Technology Group, Ltd. (NASDAQ:MRVL) reported its first quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Storage Business

John Pitzer – Credit Suisse: My first question is just related to the 500-gig platter opportunity. Can you give us a sense of what percent of your overall storage business that’s going to represent exiting the July quarter, and where that might go over the next two to four quarters, and is this really just being driven by the fact that any capacity that was destroyed during the floods is coming back on at 500-gig or can you help kind of explain the drivers beyond that?

Clyde R. Hosein – CFO and Secretary: In Sehat’s script he mentioned about 35% so roughly a third in Q2 will be at this capacity point, the third of our units, and so we are fairly clear about that. As to the part of the question, where this is going to grow, again as we indicated earlier, the industry has been disrupted in the last year by earthquakes a year ago and more recently and more tragically in the floods, and that has disrupted the supply. So, people would produce whatever capacity drives they could. In this case, if you have shortage of heads, you would produce the one that maximizes those units. We believe by the end of this quarter the industry will recover to normal behavior patterns, which means that if you can deliver the highest capacity drive at essentially the same cost or a moderate increase in cost that will drive consumer behavior and that been proven in industry over the last 20 years. So, over the subsequent quarters we expect that to increase. As we indicated, we a very significant position in this space right now with supplying 500-gig to every customer (indiscernible), and we expect that strength to grow.

A Closer Look: Marvell Tech Earnings Cheat Sheet>>

John Pitzer – Credit Suisse: Guys, as my follow-up question just on the TD market, I think the concern in the marketplace is either this is going to end to be somewhat of niche market size and/or your competitive advantage that you have today is not going to be sustainable. So, Sehat, I was hoping if you can maybe address what you think the ultimate unit size of the TD market is and maybe Clyde can you talk a little bit about your competitive position, and specifically if pricing starts to become a weapon that other players come back at, what does your cost curve looks like versus the industry?

Dr. Sehat Sutardja – Chairman, President and CEO: About a year ago we had a lot of these questions that the market doesn’t even exist, so now the question changed into this market is going to be niche market. I will view that this is far from the truth. The market for TD is actually the market of the customer base, the number of units, the number of customers of the China Mobile, so in this case they are 650 million or so subscribers in China alone. So, this is effectively, this is the size of the market of TD, because after all, TD is the upgrade for the 2G customers that you have today. So, this started last year, it’s happening more this year, and we do expect the number of units will continue to grow over the next several years, and then at some point, some of the high-end customers will move the TD-LTE. So, clearly the market is huge. I think we just have to wait and see whether our projection is true, but clearly while last year, there were very few competitors that invested in this area, and this year the situation changed. Clearly indicated the fact that we are having competitors going into this market, indicates that even the competitor believe that these markets are going to be big, otherwise I don’t think they want to invest their resources to go after this market. No, competition is a good thing. It’s going to drive the price down. It’s going to increase the volume. It’s going to drive the technology adoptions, push the technology to more advance technology. So, this is no different than any other business that you have or any high volume business that we are in. So, the older products will continue to have price erosions. We’ll have to invest in newer technology and newer products to compensate, to somewhat compensate the price erosions. We are not concerned about this because this tender things that we have to do. So we do believe that this is just normal behavior and then we’ll continue to basically invest in more advanced technology, I already mentioned in my prepared statement that next one will be one or more advanced TD. In fact, over the last quarter we already introduced released eight TD-SCDMA modem, the TD-LTE. As we continue over time we integrate more and more of this function into a single chip or a few devices.

Clyde R. Hosein – CFO and Secretary: If I may complement what Sehat said. Remember the China Mobile is the principle carrier today and they have over 650 million subscribers which in time will converter over to TD and we believe at the right price point will converter over to TD smartphones. So this is not a niche market by any measure. A big market like this will certainly attract a number of competitors and we’ve seen that already. But as Sehat just indicated, we will deal with competition. We know they’ll use price, but they can’t beat us on function and they have not beaten us on function to-date. So what else would you do if you didn’t have the performance and functionality? So we expect that we reduced cost this year and we’ll reduce it again next year and we’d integrate that reduction next year with increase function and reduced cost, so we think we’ll deal with that adequately. Next question.

Seagate

Harlan Sur – JPMorgan: Great job on the quarterly execution. It looks like you guys are ramping enterprise HDD share back into Seagate (NASDAQ:STX) about six to nine months ahead of plan. Can you just help us understand what were some of the performance differentiators that enabled you to get back into Seagate (NASDAQ:STX) on an accelerated schedule and then I have a follow-up question?

Clyde R. Hosein – CFO and Secretary: So, we didn’t say any particular customer, but we have said before that we have won the next generation design and that we indicated that’s begun to ramp. This ramp with enterprise because of the customer qualification in data centers and the like tend to take longer than the client side of it, but that’s actually not only designed, as we discussed today, we mentioned multiple designs at other customers in that space. So, we think enterprise will do well for us and it’s the robustness of our design, the better signal-to-noise ratio, those are the factors that contribute to us winning that back.

Harlan Sur – JPMorgan: Obviously, the TD business was solid here in the quarter looks solid again in the second quarter, there has been so much noise on the competitive environment on TD basebands. Is the team still confident about maintaining 60% share of TD handset space looking into the second half of this year? We’re hearing that China Mobile is now targeting 35 million to 40 million smartphone shipments this year versus prior target view of 30 million. I am just wondering, if the team at Marvell is getting indications that that is the case?

Dr. Sehat Sutardja – Chairman, President and CEO: First of all, the noise is coming from the competition mostly and that seems to be a lot of words there, David taking on Goliath here. As far as the share we have much higher than 60% currently and we indicated that earlier, but to be fair we’ve indicated this that competition in the second half will be much more intense as some of these products from our competitors come out, they come out by the middle of this year. We know at least in one instance it is not close to our level of performance. The other one hasn’t come out yet. So, a lot of it is speculation and I know people are tends to play games in speculation. So, when the products come for real into the market, competition in smartphones, I think that will be the best judgment on that.

Harlan Sur – JPMorgan: Your view on China Mobile now looking at more like 35 million to 40 million smartphones shipments this year versus their prior view of 30 million?

Clyde R. Hosein – CFO and Secretary: The indication we have is they have set a target of 30 million. We know people have talked about numbers bigger than that. I think outside of the carrier subsidies, there might be opportunities to do that, that’s probably in the low cost areas which is where you hear some of this noise coming from, but either way, it’s a big opportunity, certainly not the niche opportunity, it’s a big opportunity whether it’s 30 million or 35 million, I don’t think it changes the needle. It’s over 2.5x from where it is today and we are very competitive in it.