Tuesday, July 10, 2007

Marvell Releases 10-Q with Fiscal Q1 2008 Results

Marvell released a 10-Q giving its results for the quarter ending April 28, 2007 (Fiscal Q1 2008) yesterday. In the press release of Q1 results, and at the analyst conference (See my summary), only the revenues had been reported due to the ongoing stock option accounting restatement. The filing of the 10-Q confirms that the process is complete and accounting issues have been resolved.

If you have been following the Marvell story the 10-Q confirms what has been broadly guessed. Revenues were $635 million, up 2% sequentially from $622 million in Q4 2007 and up 22% from $521.2 million for fiscal Q1 2007. This annual increase of revenues was largely due to two major acquisitions, Intel's XScale division and Avago, a specialist in chips for printers.

Also mainly due to the acquisitions earnings swung from a healthy profit of $77.6 million year-earlier to a substantial loss of $52.9 million. This was expected because the larger acquisition, XScale, was losing money when acquired and is not expected to become accretive to earnings until calendar 2008.

Cash from operations was $54 million, up from $47 million year-earlier. Contrasting this with the GAAP earnings shows that many of the charges against earnings were non-cash.

The real question is, what does the future look like? The XScale processors are meant to compete in the high-end cell phone market. They were not chosen by Apple for the iPhone, though at least one chip by Marvell was. However, even under Intel the revenues from XScale were growing at a good pace. By combining the XScale processor with other highly-regarded Marvell analog and digital components, it is possible (but not guaranteed) that traction will be good. By increasing XScale revenues and decreasing production costs through outsourcing, Marvell expects to make the XScale business profitable some time next year.

XScale is not the only trick Marvell has to pull off. It did so well in creating chips that go in disk drives that it seems unlikely that it can gain much more market share there, and that market itself is not growing quickly. So Marvell is pressed by the need to innovate, winning share in other markets and entering new markets. One area of optimism is chips to improve performance of high-definition displays.

The main danger for Marvell, other than a macroeconomic downturn, is failure to expand XScale revenue. For now Intel is producing the processors and Marvell is obligated to buy them even if it finds itself unable to sell them.

More data:

Marvell investor relations page
My Marvell (MRVL) page

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