Marvell Technology Group CEO presents at Citi Global Technology Conference (Transcript)

Sep. 4.13 | About: Marvell Technology (MRVL)

Marvell Technology Group, Ltd. (NASDAQ:MRVL)

Citi Global Technology Conference

September 4, 2013 03:05 PM ET

Executives

Sehat Sutardja - CEO

Sukhi Nagesh - IR

Analysts

Glen Yeung - Citigroup Capital Markets

Glen Yeung

Okay. Good afternoon, everybody. It is a day two of two of Citi’s 2013 Global Technology Conference. I am Glen Yeung; I am Citi’s Head of Global Technology Research at Citi and also the U.S. Semiconductor Analyst. We have to present to us today Marvell Technology and on behalf of Marvell is Sehat Sutardja, who is the Chairman and CEO and Sukhi Nagesh of IR. We will do Q&A as we have done with other sessions and at some point in the Q&A I’ll open it up to the audience. So if you have questions please be ready.

Sehat, we have been asking all companies the same three questions at the top. So if you don’t mind I ask those of you the stances can be relatively sort if you chose. First one is, would you characterize your overall visibility in your business as better, worse or the same as compared to one quarter ago or one year ago?

Sehat Sutardja

I would say similar. Although compared to quarter but compare to a year ago it's obviously been better.

Glen Yeung

Little bit better. And is that because of things like lead time or is that because the customer outlook is a little more content.

Sehat Sutardja

The things about the also knows that capacity is tied into the supply chain, so they have to be careful about doing the forecasting.

Glen Yeung

Interesting, okay, I’ll come back to that point. But let me go through these questions. Second one is would you characterize your internal opportunities for productivity gain think OpEx or managing cost as better, worse or the same compared to a year ago?

Sehat Sutardja

I think its better. We have been improving our executions. We have analyzed what we have done wrong in the past and we tell our self not to repeat those mistakes that we have done in the past. So obviously things are doing better for us in the last -- every quarter as those things getting better.

Glen Yeung

For what it's worth, you guys have been consistently beating my OpEx assumption.

Sehat Sutardja

Yes, and remember we talked about being relatively flat on the OpEx side and we’ve been executing to that. So relative to other companies I think we’ve held that pretty well. I was just assigned the check.

Glen Yeung

Or don't sign the check. [Indiscernible]. All right, third one is could you please rank your intended uses of cash between buyback M&A, dividend or if there is else…

Sehat Sutardja

Yes, so, first and foremost it’s always been true for us is if we want to use our cash for organic growth I mean growth is important for us, we're obviously a technology company and for us to be relevant player and technology based, we have to be a growth company. So, we have to use our cash for that purposes. We’ve also said that when we may be doing some technology IP type acquisitions, very small, nothing big. We’ve done it in the past, we could use our cash for that and then if we have excess cash, we’ll return it to shareholders, we’ve been doing that. If you look at our free cash -- what we return to investors in the form of free cash flow, while the last two years we’ve done more than 100% of our free cash flow in the form of buybacks and dividends. The first half of this year it’s been 200%, obviously that’s not going to continue over time but I think our track record speaks for itself.

Glen Yeung

That was a good track record. Let me just Company specific questions, and there's two sort of topics I want to hit right off the bat. But the first one is something that just came up today, earlier a few minutes ago, Scott McGregor was in this Pizza Hut and was announcing the acquisition of the renaissance LTE asset. I wonder if you could just give some thoughts there because one of the contentions Broadcom is making of course is that technology has already been pre-qualified at AT&T and I know you are in process of doing that. How do you view that acquisition?

Sehat Sutardja

I also just learned this early this morning so it’s very hard for me to give you any fair answer. The only thing I can say is from standing from the outside when imagine if I have been telling you all along that our modems is the best in the world, we are going to be bidding Qualcomm and our modems are going to be certified in AT&T by the end of this year and everything is looking great and then this morning I told you that oh never mind I have better one to – throw me tomatoes at my face.

Unidentified Analyst

So the other things Glen is, if you talk to customers I mean one of the requirements from most customers today is the ability for a vendor to actually have both TD and FDD-LTE so if you look at the landscape out there, there is a lot of people they’re stating doing the one we just talked who have one or the other. But our customers want both. So, there is only -- outside of Marvell we have -- we know a large player who has that. So, I think it’s going to be hard for most of these competitors to play in this space not having a solution that addresses both markets.

Sehat Sutardja

I guess the only thing -- maybe I do can say for certain that our LTE is already qualified by AT&T, the data most fully qualified, we’re going to be fully qualified on the voice as well, well before the end of the year. Our -- we have customers, we have real customers that are working on handsets meanings like our engineers, our FAEs are busy in the customers, solving problems and these are not chip problems they’re solving integration software integrations, integrating with the WiFi in the LTE including the GPS with the LTE, specification the LTE with different base stations with different -- various different base stations and so on.

So, these are real work that we’ve been working with our customers. And it's enough -- these things take time. Because this are massively complex activity and if we -- and on top of that we have to support, as Sukhi mentioned we’ve to support FDD-LTE, we’ve to support TD-LTE, we’ve to support TD-SCDMA most of them customers, we have to support W-CDMA backward compatibility, we have to support multi-SIM because most of the customer that we talk that we’re working with, they are ones to have multi-SIM SIM cards capabilities and you have to optimize the user interface to make sure that you work with the minimal number of the [indiscernible] so that they can lower the cost. And every single one items maybe not big deal but if you look at the maximum run off of checklist items that need to done, its verified that even we want to go production before the -- early next year, it’s very, very tight schedule to meet our pretty single line have to check, so be clean from the list.

Unidentified Analyst

Okay [indiscernible].

Sehat Sutardja

Well through higher package, an army of people I think it’s fixed more in a week.

Glen Yeung

Let's address actually now the acquisition or privatization that’s happening for in terms is being privatized in a way in China and prior to that their business has pretty much fallen off the cliff and then the privatization as you -- what’s your general take on the implications of that for the industry and for you in particular?

Sehat Sutardja

Again, I also am paying attention to some. If you look at what we have to do, as a Company we need to focus in building advance technology. Marvell to success, if you look in the past in our history, whenever we focus on building events as a product that can complete against the best of the best in the market we can be successful. So as a result of this in the last one year, I’m only focusing on the leader in LTE. The one that's shipping the product, the one that have 100% market share. So I am not paying attention to anybody else because as soon as I focus on somebody else that will be a mistake. After all my customers when they build [indiscernible] using by chip, it’s going to compare my solution against the other guy, the leader, and I need to say, hey you better be equal at least equal in performance compared to these guys and has to be cheaper. So this is what I -- that we have to focus on.

Glen Yeung

Okay let's look at how you then are addressing that market, you have the idea of unified platforms. I wonder just for the benefit of the audience can you just define exactly what is the unified platform.

Sehat Sutardja

When we say unified platform means we have tried to -- we need to, we have tried to make the chip look as close as possible to be the same in the different product lines. So, meaning, okay, we'll start with the simplest things, the pin out, the package you know has to be the same. The application processor for the system has to be the same, the video processor has to be the same so that your video software optimization feels the -- looks the same, your camera focusing you want to be the same, your graphics chip, 3D graphics, so all the optimizations routine of the android optimizations of the android is the 3D graphic routine, needs to be the same. So your power management scheme to how to power down, power up, of the different, various different functions so that you get the lowest power possible, you get extended battery life they only need to be the same. so that’s what I meant by unifying the platform, so the customers they work on one device, once they are familiar with the optimizing for that one device to look through the second device that may be happened to have from a dual core to a quad core or from a quad core 3G to a quad core LTE, they will be, they only have to focus on the new stuff, so that guys that would be looking on the 3G only have to focus on portable side of the LTE, that’s it, they don’t have to have worry about anything else.

Glen Yeung

Okay and then kind of think about that in terms of take for example a handset maker in China with whom you already qualified and they wish to move product from the Chinese market to the US market for example, just walk us through the process and how this makes it easier for them to do that.

Sehat Sutardja

If you look at -- the single biggest difference is that once an account customer qualified the product, let’s say for China Mobile in China, once its qualified with CD LTE will be certified of our products working, production eager to do it, if you go to US its only simple as getting certifications of trying to address AT&T, you need to have certification from AT&T, other than that I don’t see any difference.

Glen Yeung

And do you think that the success that you have seen in China positions you well because those OEMs have that they want to move products from China to US. Do you think that you are advantageous in that?

Sehat Sutardja

If you talking about the Tier 1 of the Chinese manufacturers, I think they all have aspirations to go to global. so if you look at when you go to 4G LTE, there is a misconception that CD LTE is China only market, now they are not -- that if now through at all, anybody investing in CD LTE actually are investing for the global LTE because after all CD LTE actually is the superset of FDD LTE plus the CD portion. So in fact they are working more, then what they need to do compared to when they have just focus on FDD.

Glen Yeung

Okay and then let’s take the experience from TD-SCDMA and translate that to TD LTE, because TD-SCDMA didn’t ultimately pan out the way the market intended or the way that you intended. So what do we learn from that and what do we take into TD LTE?

Sehat Sutardja

Yes, I guess the lesson is that when we build -- maybe we should have realized that TD-SCDMA is not really -- in terms of performance it’s not 3G performance, it’s more like CDMA performance. 3G, when we talk about standard 3G, its really W-CDMA, so because of it’s more of a CDMA performance, it's hard to command higher prices or it's hard to build cellphone chips with high performance and expect and then the CD that more than establish is not that high data rate. when we move to W-CDMA actually this is this lesson that they are not comparable, so well before maybe you built systems too powerful for CDMA when you build solution for LTE actually you need to be way more powerful than the W-CDMA market, so may be the only way I can -- maybe the lesson is that okay, well before we need to -- we build it too powerful then we need to be even more powerful this time.

Glen Yeung

Okay, let me get a little away from the phone market into, I don't know what you call it maybe the other market. You guys have Comcast which has been an interesting win for you. So let's talk a little bit about that. And ultimately I want to broaden that discussion to other types of devices that may use an ARM solution, call it variable, it could be virtually anything. But let's start with Comcast.

Sehat Sutardja

Yes, Comcast is a device that will allow all kind of various mobile devices, smartphones, tablets, laptops to be able to seamlessly display content into a much bigger screen that you already have which is called TV. So a lot of applications like watching Netflix or any videos or any types of content that you will normally have on your handsets, would need this kind of solutions.

But this is not the only solution, if you have let`s say menus on your -- on the -- in front of office, displaying stock market prices. Technically speaking you don't really need a PC to drive that monitor. What you need is a smart device, a Smart TV, but Smart TV actually are going to make problem, we know there is no volume, it’s hard to build an infrastructure to build Smart TV. While Comcast actually breaks this barrier by pricing the Comcast circuit solutions, by Google pricing it at $35 from the get go, they make it this will be a non-issue. So the markets could take off instantaneously and people don't have to think about paying $35 cheaper than they pay for their t-shirts, and now they can make their OLED, old TV to be smart.

So this is an important strategy for bringing the awareness of Marvell Technology into the marketplace. It doesn't seem to me that significant but the more -- people find out more and more applications beyond Netflix and watching videos. There will be dozens and dozens of applications that will be introduced in the future, even with the [indiscernible] is yet another way of interacting with content on the bigger screen leveraging the smartphones that you already have, so that you don't have to learn new ways of interfacing to the TV without paying extra on top of that.

So this is going to bring the awareness of our technology, it is going to strengthen our LTE -- even strengthen our LTE position in the market.

Unidentified Company Representative

So one of the other trends that we're seeing, at least Google is seeing in the market which is helping these kinds of devices, they are seeing the cutting of the cord if you will, on the home front, sort of cutting on the cord in the landline, we’re seeing a lot of people. The 18 to 24 demographics is cutting the cord on watching content instead of regular cable, now everything is through Internet. So this allows that, there are more and more content that’s coming online. That allows this new generation of viewers to view content that way.

Sehat Sutardja

Much more advanced user interface compared to the standard set top box interface.

Glen Yeung

I have to admit that I just started to watch Internet TV. It's a stretch for me but I got there.

Unidentified Company Representative

So imagine if you wanted to watch some kind of video on your -- whatever device you have. Let's assume NFL game, whatever it is. And so you are watching it and you wanted to just cast it from your device under the big screen for $35 you can just do it very easily and it frees up your handset, it's not like your handset is tied to it, you can go make a phone call you can even leave that thing running in the background. It just connects it automatic to your network.

Sehat Sutardja

Actually this whether LTE is more important down the road if LTE becomes popular, people have more bandwidth because they have LTE, they actually can watch a video on the handset with a small screen, lower resolution and when they really like the content to be with higher resolution they just have to push a button, voila, it's on your big screen and now it not consuming LTE bandwidth, only consuming your broadband bandwidth, not consuming the CPU power, the battery on your headsets, consuming the power on the power lines. So the two will help each other push the LTE actually will -- the more people use LTE the more people want to have this.

Glen Yeung

So we're kind of talking about some of the leading edge stuff. Variable is something that people are starting to address now and I wonder if you could just give us your thoughts about your belief or lack of thereof in the variable market.

Sehat Sutardja

I believe that the market is going to be there. We need to figure out way how to build this things that would be very low cost and extremely long battery life. You don’t want to wear something that eight hours later died, so you probably want to have things -- when you have a watch even when you have a -- I don’t have a watch, but some people buy watch they -- that they I have five day reserves. So, if you want to wear a watch you better be have at least five days batter life, that is the challenge, how do you build that? How do you build things? And have at least five days of batter reserve.

Glen Yeung

Are you guys doing work in that market as well?

Sehat Sutardja

We are looking it but not ready to make any announcement whatsoever.

Glen Yeung

And just [indiscernible] technology stuff the other thing and you mentioned earlier Smart TV which at one point I thought was going to be an interesting opportunity from [indiscernible] where you do you stand now with respect to Smart TV?

Sehat Sutardja

The Comcast device actually is -- is actually is the device that we'll make -- bring the awareness of why TV needs to be smart. In the past, people say why do I need the Smart TV, like why do I need to buy new TV, why do I need to pay more for Smart TV, Smart TV but dumb TVs in Costco? So why do I need to pay for this? So we need to educate, education is a part of a big reason why Smart TV did not -- could not take off. Comcast is the chief way to educate the market that you do need Smart TV. As we are accustomed to this, we have discussed abilities, next time when you want to buy a new TV they will say okay, I will want to have that Smart TV, and so small longer term Smart TV, a true Smart TV they get into -- have TV to be smart not next year and it will take several years before every TV to be Smart.

Glen Yeung

Okay, let`s now -- let`s switch to the more traditional we call the HDD market, you guys have been share gainers recently in kind of a flattish time because you're actually doing quite well. Can you talk about what the route of that share gain is and how sustainable you think it is?

Unidentified Company Representative

Well, HDD, this is a business that we know every single -- the in and out of this business very-very well. This is business where we from day one in the business we always focused in delivering the most advanced technology. So every time we developed this advanced technology, we know that we will gain market share, so no difference in the last several years. We continue to -- when people when -- some of the customers say, we do not need this technology, we just need because it's cheaper. We say no, we had to build more advanced ones and we [indiscernible] to make it cheaper but maybe not as cheap as we you wanted to because we want to get half of the benefits of [indiscernible] for performance enhancement via half of cost reduction. So we have been using this formula for long time and this is the reason why we say we have been getting market share from 0% to more than 60%.

Glen Yeung

People have been talking about death of the hard drive for a long time and it doesn’t really happen and some things obvious why but let’s have you explain it and…

Unidentified Company Representative

As people think, hard drive, today 500 gigabytes for $40, the 500 gigabytes at $50, you probably can get at OEM price probably around $400 maybe $350. One terabyte drive a year and half from now will cost also $40. One terabyte SSD year a year from now with [indiscernible] maybe still $500, so you [indiscernible] to see but attempt to one difference in prices, so as a result, it’s hard to kill hard drive unless if only this is 128 gigabytes. Today 128 gigabytes SSDs cost about maybe $100 or so approximately $90, more than that. Okay, so that's probably $100. so hard drive $40, so it sounds like -- so it’s a lot more but it’s more but not a lot more, so this is reason why you see some of the Ultrabooks comes with 128 gigabytes entry level okay, because for $60, $70 more. Some people actually could afford to pay for it and this is the reason why we say from the date of beginning many years ago when we would say look we see a time when up to 20% of the market for hard drives in PCs will be at pure SSD base and the reason because they are always 20% people know that we need to pay more meaning like operations and at least sign a check [indiscernible] and he signed it. So about 20% [indiscernible] this is the reason why we have been investing in pure SSD. We also say that the lesser people maybe can afford it ,so we need to also invest in hybrid technology.

Glen Yeung

Actually it’s a hybrid technology, I am not sure how well that’s really been adopted, what's your sense of that?

Unidentified Company Representative

It is a tricky business because there is many ways to be hybrid just like many ways to be a hybrid cars, you can deal series hybrid like in cars, like you want to buy smaller hybrid, medium hybrid, large hybrid and this is the same thing, the units are 128 gigabytes, SSD hybrid, 64 gigabytes, 32 gigabytes, 16 gigabytes or even 8 gigabytes like it's confusing. So but probably know it is. The higher the price of the SSD, the higher the capacity of the SSD, the more it makes sense that this SSDs would be in separate device at the half price. As you go to the other extreme, the 8 gigabytes it makes more sense this SSD to be the flash will be integrated with the hard drive because theoretically, it’s a bit theoretically, but it's what reality is, it's possible to build a hard drive SSD controller to take care also of the same SSD capacities, theoretically. It's not what people are doing. People are doing today whether you have separate hard drive for the SSD controllers or hybrid series controllers. But I do not believe that this is going to be high volume if you're still using a two controller approach.

Unidentified analyst

Let me ask you just one other question with respect to hard drive and ultimately it stands well to attend questions but I just thought a bunch of external hard drives because with USB 3.0, it's fast, it's very easy to use. So are you seeing any stimulus to the market because of the new USB standards and then the other questions what's your assumption for hard drive [indiscernible].

Unidentified company representative

Well few things, USB 3 missing factors or you don't have to wait as long but at the same time you also see wireless hard drives also will take off because people have tablets, they want to store a lot of content in the -- like video content in their library of video content at home, where do you store that. Storing at a PC is possible but the cost of turning on the PC on 24 hours today is more than the cost of buying a wireless hard drive. So more and more people are starting to realize that it’s actually more economical for them to buy a wireless hard drive and allow anybody at home that wants to watch your private collections of videos, just push a button on your tablet and be able to watch it, stream directly from your wireless hard drive server.

Unidentified analyst

And this is also segway to SEC, where you guys actually just printed very strong numbers there, so just your general sense of the sort of relative strength of SSD and where this strength is coming from because obviously PCs don't look particularly good.

Unidentified company representative

The strength from SSD today probably comes from people that are willing to take up north of $600-$700 types of PCs, so really like $900 and above actually. So these are people that are willing to pay almost double the price of a regular laptop. So the increment of cost of SSD is insignificant to them and its noise level. So this is the reasons that we're seeing for the last year, our revenue of SSD has increased -- has doubled basically over the last year.

Unidentified Company Representative

Yes, the other thing is our success in SSD is because on the client side, we're the first to market on PCI Express and we have at least nine months lead in the market and so we’re seeing that success from all of our customers so that.

Unidentified analyst

Is your success then one of share or is there actually some growth in the PC market -- in the client market.

Unidentified company representative

I think both, as the price continue to slowly go down actually in SSD because there's always going to be a shortage of SSD capacity, flash capacity that disturbed the SSD business, so they'll be a more demand on SSD. There's also market share gain because there people are being used to build their own SSD controller realized that you know what, this flash, SSD, flash where they used to build their own controller, there was a time when the flash gives that long life cycle and as they swing the -- as they aggressively swung the [indiscernible] they are finding out the life cycles of these -- the native life cycle of the flash is getting to like a 1000 cycles, so this is getting really, really bad, that's assuming after you do error correction. So this is the need of using more advanced error correction and we are the ones that have been working hard over the last six years building new technology to enable junk "flash" to survive in the real world.

Unidentified analyst

Okay, I'm going to make one last segway and then we'll ask for questions from audience, but I did want to talk about the pawn market, because there's been a market that has been growing, transporter didn't do so well but it sounded like that was customer centric, I wonder if you could just what's happening in pawn in China.

Unidentified company representative

So I think in last quarter at least we had one customer whose orders were lumpy intra quarter which is the reason why we saw weakness in our overall networking business, the rest of our business was pretty good, I mean, our enterprise, core enterprises grew and we have files and switches instead of that all grew. So it was just a concept, went to the customer, that customer is growing again this quarter. It was just a short term event.

Glen Yeung

And then that business is for you largely a China business and then you’ve obviously got your handset business in China. Just at a high level, what’s your overall sense of the house of the Chinese market for electronics? And because frankly it doesn’t sound so hot to me, right…

Sehat Sutardja

So I think we see all the reports that you -- from the street and everything all right, is talk about inventory build, at least in the handset side and then this half of our strength and the infrastructure side I mean you hear that from all [indiscernible] of the world. On the handset side at least we’re not particularly exposed to the white box market which I think is where you’re seeing the inventory. And on the infrastructure side, no, our exposure on infrastructure is a lot smaller than some of our competitors, that’s an area of growth for us, we’ve been investing in that area in the networking space and we should see that grow. But as far as Marvell is concerned, I don’t think we’ll see any kind of inventory issues coming out of China.

Glen Yeung

Let me at this point stop and see if there’s any questions from the audience.

Question-and-Answer Session

Unidentified Analyst

So Sehat, you mentioned that your customers look at your LTE chip potentially will actually compare that chip, I guess by the time your chip consults Qualcomm would be definitely [indiscernible] I guess would be at similar nodes. And my understanding was that you’re still at not going to be at 20 at that time. So is that [indiscernible] am I correct and how do you hope that cost compared to on performance basis?

Sehat Sutardja

Okay, the question about 20 versus non-20, so all our new chips are already 20 in the smartphone side, all the new chips are designed already. In fact if you look at our storage business we’ve been at 28 for more than a couple of years already. So we have all the experience in building high [indiscernible] before anybody else [indiscernible] gave experience. We know all the issues about doing [indiscernible]. So really to compete against what we’ve done over the years about competing against other competitors is that we need to whenever we want to get into a new business that we have not been in the past, in order to be more successful or to guaranteed success, we need to leap frog. So one of the lessons they will learn from doing the handset business is that we need to stay ahead in the modem curve compared to Qualcomm.

So if you look at our LTE solutions, our LTE solutions there have been certified right now, that’s release nine, that's category 4, meaning 150 megabit per second throughput. It's not yet FDD LTE, if also if TD-LTE in fact the TD-LTE is fully certified already in China. So we’re doing all the things that we need to do to make sure that we are not behind in technology, we have to be at the forefront. If we look at our SoC technology, we’re not pulling graphics -- 3D graphics we’re putting the most advanced 3D graphics capability, second to none, second to nobody in the world. So when somebody tries to compete, tries to show their performance against our performance, we say we are not any worse, in fact we’re better.

So those are the things that we learn from this [indiscernible] in fact when maybe for some (inaudible) effect that we made in the TD-CDMA where we didn’t go to dual core because customers say they don't need it, but we make mistakes. So that’s all story. In LTE we are doing, we are playing, paying by the book these are the things that will make us successful impact, that’s what we’re doing.

Unidentified Analyst

Just want to ask a follow up, in the LTE market, do you have an aspiration, a year ago you gave your 10% goals for the end of this year, would you be giving any similar goals either for TD-LTE or just LTE market as well by the end of next year for example?

Sehat Sutardja

I get in trouble when I say 10% because everybody say, hey why 10%, I’d say well if I say 5% people say, why bother going up at that distance if you only target it 5%. And on other hand if I say 20%, it’s like you must be joking, okay like you have maybe a little market and you’re breeding too much. So 10% is a good number that’s a tough number to achieve but if -- I know it’s not cakewalk but I agree it’s a reasonable target for any serious company to be in.

Now in LTE we should be at least get a little bit of target the same thing especially now in LTE we always have -- we only have, royalty in the LTE market now, well, that’s one this morning they are able to be in there, but don’t know if something they can do it over night. We are here already. our customers are building LTE bonds with us, they have to work hard to do all the qualification and certification to make sure every single features are fully looking as what we say. They have to look with us to check every line item. They have their own list of check items.

Glen Yeung

All right. We are actually out of time. So, with that, Sehat and Sukhi thanks so much for being here.

Sehat Sutardja

Thank you for having us.

Sukhi Nagesh

Thank you.

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