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on Marvell Technology Group's (NASDAQ:MRVL) Fiscal 2Q conference call, executives discussed combining the application processor, Feroceon, with Intel's (NASDAQ:INTC) XScale following the upcoming acquisition:

William Lewis, JP Morgan

I’d like to ask about the Intel base band communications processor business, any kind of an update you could give in particular, Sehat, your comments about the processor. It sounds like what you really bought it for in particular as a base band, though the majority of the revenue is coming in the application processor where you can have some overlap. Could you kind of walk us through how you see the XScale processor versus your own Feroceon, it is going to converge over time, and how do you think about the base band business, they haven’t had a lot of success there, what is it that gives you comfort, there is good technology there, customer adoption, how are you going to improve on that?

Dr. Sehat Sutardja, Chairman, CEO, President, Co-Founder

Obviously the XScale application processor has been around in the market a lot longer than the base band processor. The base band processor is, as I’ve mentioned in my comments, with this base band processor we are now practically the second provider of the 3G solution in the market, independent third-party suppliers of 3G base band processors in the market. The XScale application processor obviously is very, very successful in the market, there’s no doubt about that. It is known in the industry as a very powerful processor for Smartphones. I talked about Feroceon. Feroceon is equally powerful as the XScale. There are some difference between XScale and the Feroceon, but in general there are certain advantages that XScale has and there are certain advantages that our Feroceon has, but the combined teams and the combined efforts will obviously have the best of the two. So, obviously, we are even more positive about the future of the application processor part of the business. But, despite the fact that you mentioned the base band processor is a smaller part of the business, which is true, that does not mean that the base band processor is not going to be bigger than the application processor part of the business; put it as the 3G market becomes more important, and we believe that 3G is going to take off. We do not know how long it’s going to take for the 3G market to take off. But regardless of whether it’s going to take off a few years from now or a year from now, we are not that concerned because there is a lot more stuff that we can add into the platforms, the Wi-Fi, the Bluetooth, the other types of radio technologies that we can add to this. So, it’s a long-term investment for our long-term growth.

Weili Dai, COO, EVP of Communications and Consumer Business

I just want to add on top of what Sehat said. If you look at XScale today, it’s a platform solution with a very mature and sophisticated software in that space. And if you look at Feroceon is for embedded purposes. So from a silicone technology standpoint of view, if you put the two pieces together and with all the great work that Intel has done, we offer customers the best total solution. And the other piece, which is very important, even though it’s a little subtle, which is the overall software third-party ecosystem, this is a very good presence for XScale. So, we believe this is a great opportunity for us and of course we’ll do quite a bit of additional investment to make this into a very successful long-term business.

William Lewis, JP Morgan

Thank you, and as a quick followup, do you have a view at this point, a couple of months into it, how many employees are likely to be coming over?

Weili Dai, COO, EVP of Communications and Consumer Business

The majority and we are very committed...

Arnab Chanda, Lehman Brothers

... historically Marvel has not pushed past technology but it seems like especially given some of the acquisitions that that will change in the future, if you could comment on that if that is true, and in that case are we going to see a sort of a gross margin going towards sort of that low 50% range versus you being in the mid 50s only a couple of quarters ago, if you could just discuss that a little bit, thanks.

George Hervey, Vice President of Finance, CFO

I think we feel comfortable with our model that we’ve put out there right now, and again I’m not supposed to mention any numbers today, so I won’t quantify it again. But, everyone knows the model that we’ve been operating under and we don’t expect to violate that model. Now, moving forward, assuming we are successful in closing the purchase of the XScale business from Intel in the early part of fourth quarter, we are going to be incorporating that into our results beginning in the fourth quarter, and the margin profile of that business is below the historical range of Marvel, and we did give some indications at the time we announced the transaction what that would do to our longer term model. So, I don’t see at this point, Arnab, anything going on that would change those assumptions. But yes, as we get to yield with more varied pieces of business, it’s a different mix of products.

Arnab Chanda, Lehman Brothers

One last question please, this is about Intel again. Either for Sehat or Weili, it’s been a little bit of time I’m sure you spent in this market and clearly Intel has not historically been a Tier 1 player, maybe stronger in application processor and base band, and if I remember they bought a DSP communications business which has been on for a long time, and Marvel is also a relatively new player, obviously very strong in other markets but not necessarily established in handsets. Other than sort of pure technology, it seems like there are things like software that Weili talked about, what will make you more successful and what are you seeing from the customers after this process? Thanks.

Dr. Sehat Sutardja, Chairman, CEO, President, Co-Founder

Maybe I can address this from a different angle. As you know, we’ve been looking at trying to get into this business for the last many, many years. We started our embedded Wi-Fi development and the processor development with the anticipation that further down the road we have to get into the cellphone base band business. So, we’ve been looking at how to get into this business, we have been looking at how to develop technology, we have several activities going on in-house, and because of our partnership with Intel we also know what’s going on there. The only thing I can say is we are very, very comfortable that this is the right thing to do for us to acquire the Intel business despite the perception of theirs that Intel is not a tier 1 supplier. That’s okay and we are not concerned about that. We are looking from the technology, what is the base technology that we are getting, what we can do with that, and what we can enhance from that. So, we are extremely comfortable that this is the right thing for us to do.

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  • Source: Marvell Comments on Acquisition of Intel's X-Scale