Marvell Technology Group Ltd. Earnings Call Nuggets: Wireless & Connectivity, Gross Margin Details
Marvell Technology Group, Ltd. (NASDAQ:MRVL) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.
Wireless & Connectivity
Ruben Roy – Mizuho Securities: Congrats guys on good results and guidance. Sehat, wondering if, I understand you talked about double-digit growth for both wireless and connectivity, just wondering, if you can give us a little more granularity around those constituents given the execution has been so good into Q2 and obviously with the guidance for Q3, please?
Dr. Sehat Sutardja – Chairman, President and CEO: Yes. So, I’ll cover the…
Brad Feller – VP, Corporate Controller and Interim CFO: So, why don’t you cover everything?
Dr. Sehat Sutardja – Chairman, President and CEO: Yes. So, it’s a combination of different things, Ruben. So, it’s additional devices based on our dual core platform. It’s the ramp up of our quad core platform for mobile and then the related wireless that will go into those mobile applications as well as the launch of the gaming consoles for the two guys that we deal with. Those are the biggest pieces there.
Ruben Roy – Mizuho Securities: Given that this year is a little bit different from past years, can you maybe, Brad, talk about how you guys are thinking about seasonality as you look beyond Q3? Is this going to be a typical seasonal year as you look at Q4, or do you think there are different moving parts this year please?
Brad Feller – VP, Corporate Controller and Interim CFO: Yeah. So traditionally for us, our Q2 and Q3 are seasonally strong quarters. Q4 and Q1 are seasonally down. I wouldn’t expect anything different this year. So, I would expect Q4 to be seasonally down as well as the fact that it includes January, you should model that down.
Ruben Roy – Mizuho Securities: Then, just finally on the solid state drives commentary, year-over-year growth – year-over-year revenue is doubling. Where do you think you are in terms of market share and how much more room is there to grow market share from current levels?
Brad Feller – VP, Corporate Controller and Interim CFO: Yeah. So we’re getting to approach a similar kind of market share as we have on the HDD side of things. So, we continue to get traction there. I don’t know that we’ve disclosed a specific number, but we continue to advance our share there.
Sukhi Nagesh – VP, IR: If you remember last year…
Dr. Sehat Sutardja – Chairman, President and CEO: I think it was reiterated in – we are talking about – in terms of the market there is not proprietary based on. I mean the merchant market, not the segments of the market.
Sukhi Nagesh – VP, IR: Ruben, remember, last year, we were maybe about 50% — we exited the year last year about 50% or so, the merchant silicon market. We’ve been gaining share in Q1. We’ve gained share again in Q2 and we expect to gain at least 5 if not more than that points of share in SSDs this year in the merchant market.
Gross Margin Details
Doug Freedman – RBC Capital: When I look at the incremental gross margin on the next quarter, pretty low number here and I am a little – I understand the growth in wireless coming at us and that’s going to be a contributing factor. When we get into the seasonal quarters for wireless is not a bigger mix of your business, should we be modeling gross margins to recover or are there other things taking place here that are going to keep the gross margins under pressure? I ask that with the caveat that you did just see a 30% growth in wireless and I would have expected mix in the July quarter to have pressured gross margins and yet we saw a nice number in the quarter just reported?
Brad Feller – VP, Corporate Controller and Interim CFO: Yes. That’s a good question, Doug. So the way to think about it, you are right, is that they are very mix dependent. So in quarters where mobile and wireless and some of the consumer businesses are seasonally down you should see an uptick in gross margins. Now the reason you didn’t see it as much in Q2 is because our storage business was so strong that it helped offset some of that decline in margin with most of the – a lot of the growth in Q3 coming from the mobile and wireless piece of the business. That’s what’s putting pressure on the margins. But we have talked about the fact that as that business grows we will be between 50% and 55% but keeping it, it will push it towards the lower end of that and then it will pull through operating margin leverage for us.
Dr. Sehat Sutardja – Chairman, President and CEO: I will also say that, in the mean times when the majority of our wireless business – mobile is still in the 3G side. That’s where the 3G side is where we see the margin pressure. Down the road as we go to the LTE the margin will naturally improve back to the more normal range…
Brad Feller – VP, Corporate Controller and Interim CFO: I guess much of it is normalizing (indiscernible) rather that should help us out.
Doug Freedman – RBC Capital: My follow-up is really regarding that LTE and when it becomes a material piece of the revenue mix, will you start shipping your LTE solution in Q3 and what does that look like as far as a ramp over the next three or four quarters?
Dr. Sehat Sutardja – Chairman, President and CEO: We are already starting shipping the LTE, okay, for the – in the smaller volume, obviously, for the standalone modem. However, for the single chip integrated quad core LTE, our expectation is the shipments in Q4, those are at the end of the year. Those – that’s today’s result what we are seeing from the customer plan of production.
Brad Feller – VP, Corporate Controller and Interim CFO: Yes. Then I would expect that you’ll see additional models in early next year to launch from customers as well.
Dr. Sehat Sutardja – Chairman, President and CEO: Yes. Definitely, it will be more next year.