Clyde Hosein - Interim Chief Operating Officer, Chief Financial Officer, Principal Accounting Officer and Secretary Jeff Palmer - Senior Director, Investor Relations Sehat Sutardja - Co-Founder, Executive Chairman, Chief Executive Officer, President, Chief Executive Officer of Marvell Semiconductor Inc, President of Marvell Semiconductor Inc and Director of Marvell Semiconductor Inc

Quinn Bolton - Needham & Company, LLC Emily Scudder Glen Yeung - Citigroup Inc Srini Pajjuri - Calyon Securities (USA) James Schneider - Goldman Sachs Group Inc. Sanjay Devgan - Morgan Stanley Kevin Cassidy - Thomas Weisel Partners Equity Research Harlan Sur - JP Morgan Chase & Co Adam Benjamin - Jefferies & Company, Inc. Craig Berger - FBR Capital Markets & Co. John Pitzer - Crédit Suisse AG

Good day, ladies and gentlemen, and welcome to the Q1 2011 Marvell Technology Group Ltd. Earnings Conference Call. I'll be your coordinator for today. [Operator Instructions] I would now like to turn the presentation over to your host, Mr. Jeff Palmer, Vice President of Investor Relations. Please proceed, sir.

Thank you, Keana, and good afternoon, everyone. Welcome to Marvell Technology Group's First Quarter of Fiscal 2011 Earnings Call. With me on the call today is Dr. Sehat Sutardja, Marvell's Chairman, President and CEO; and Mr. Clyde Hosein, Marvell's CFO. All of us will be available during the Q&A portion of the call today. If you've not obtained a copy of our current press release, it can be found at our company website under the Investor Relations section at www.marvell.com. Additionally, this call is being recorded and will be available for replay from our corporate website. Please be reminded that this call will include forward-looking statements that involve risks and uncertainties that could cause Marvell's results to differ materially from management's current expectations. The risks and uncertainties include our expectations about sales of new and existing products, general market trends and statements regarding our financial projections for the second quarter of fiscal 2011. To fully understand the risks and uncertainties that may cause results to differ from our outlook, please refer to Marvell's latest annual report on Form 10-K and subsequent SEC filings for a detailed description of our business and associated risks. Please be reminded that Marvell undertakes no obligation to revise or update publicly any forward-looking statement. During our call today, we will make reference to certain non-GAAP financial measures, which exclude stock-based compensation expense, as well as charges related to acquisitions, restructuring, gains and other charges that are driven primarily by discrete events that management does not consider to be directly related to Marvell's core operating performance. Pursuant to Regulation G, Marvell has provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures in our first quarter of fiscal 2011 earnings press release, which has been furnished to the SEC on Form 8-K and is available on Marvell's website in the Investor Relations section at www.marvell.com. Now, I'd like to turn the call over to Sehat.

Thank you, Jeff, and good afternoon, everyone. Today, we reported fiscal first quarter 2011 revenues of approximately $856 million, reflecting a 2% sequential increase and a 64% increase over the same period a year ago. For the first quarter, we delivered non-GAAP gross margin of more than 60%, with non-GAAP operating margin of 31% and managed our working capital closely to drive free cash flow to $237 million or 28% of revenue. Our sequential growth in the first quarter was at the higher end of our guidance and was primarily due to the ramp of new products, new programs and in certain cases, new customers. The sale of new products during the quarter was approximately $135 million, about 35% increase sequentially, representing 16% of our total revenue. During the first quarter, new product revenue was primarily due to the sale of new mobile and wireless products. About 2/3 of new product revenue was a result of continued strong demand for our 3G communication processors and about 1/3 was due to demand for new Wi-Fi products primarily our .11n Avastar products. Our growth in the first quarter and again in the second quarter is driven by the introduction of new products and design wins we have been working on for the past two years. Other than the revenue in new products, our baseline revenue is consistent with the trends experienced by our end customers. As an example, our revenue from the storage market has been essentially flat since the fourth quarter. In the second quarter, we see the positive trend of new product growth continuing. This is a clear indication that the inflection point in our revenue growth that we discussed on our last call is playing out as expected. Putting this together, we anticipate revenue from new products to increase from 16% in the first quarter to greater than 20% of our total revenue in the second quarter. I would now like to review the recent performance achieved in our various addressable end markets. The sale of products into the mobile and wireless end market contributed 22% of our total revenue, increasing about 18% sequentially, greater than our original assumptions as new products introduced by our customers continue to ramp. As mentioned previously, we experienced excellent growth from our cellular customers during the quarter, as the smartphone programs continue to ramp. During the quarter, the sale of our Wi-Fi products was in line with our original expectations, going approximately 6% on a sequential basis. We experienced solid growth from our .11n Avastar family, which now makes up about 25% of our total Wi-Fi sales. Additionally, we saw continued traction of our multi-radio or combo device revenue, which represents about a third of our total Wi-Fi revenue. Overall, the first quarter was another demonstration that our long-term investments in the mobile and wireless market are beginning to yield positive benefits. Looking to the second quarter, we expect a step function in growth across our mobile and wireless product portfolio as new and exciting design wins continued to gain traction. As a result, we anticipate revenues in the mobile and wireless end market to grow over 25% on a sequential basis. Now turning to the networking end market. Sales were down sequentially 5%, in line with our original expectations and represented 20% of total sales. As we progressed into the second quarter, we believe sales into the networking market should improve. We expect sales into the Ethernet client market will be flattish to seasonally down, while sales into the enterprise market should grow in the range of low double digits, primarily due to new programs ramping of several key customers. In total, we anticipate sales into the networking market to be up in the range of mid-single digits on a sequential basis. Lastly, the sales of products into the storage end market in the first quarter were essentially flat on a sequential basis, representing just over half of our total revenue during the quarter. This was in line with our original expectations. Looking to the second quarter, we anticipate the sale of our storage products to be approximately flat to slightly down on a few points, reflecting typical seasonal trends. In summary, our first quarter is a clear indication that the actions we have taken continue to yield positive benefits from both our revenue growth and profitability perspectives. We are beginning to see the signs of the inflection point in our growth we discussed on our last earning call. The momentum of design wins being awarded for new products is increasing. In fact, customer demand and interest for our latest products has never been better, a positive indication that our long-term investments are paying off. Taken together, these trends leave us confident that we will continue to deliver growth consistent with our long-term growth model and in excess of the overall semiconductor industry. And I would like to turn the call over to Clyde to review our financial results for the first quarter and to provide our current outlook for the second quarter of fiscal 2011. Clyde?

Thank you, Sehat, and good afternoon, everyone. As Sehat mentioned, fiscal Q1 revenues came in at approximately $856 million, representing a 2% sequential increase over fiscal Q4 2010 and an increase of 64% in the same period a year ago. Our overall revenue performance came in at the higher end of our guidance. Our non-GAAP gross margin for the first quarter was approximately 60.6%, up 60 basis points from the fourth quarter and up about 900 basis points from the same period a year ago. This was slightly better than our initial guidance of 60% plus or minus 50 basis points. Our overall operating expenses for the first quarter on a non-GAAP basis were approximately $255 million, in line with our earlier projected range of $250 million to $260 million. As compared to the same period a year ago, operating expenses were up approximately 9%, while revenues grew 64%, demonstrating the leverage in our business model. R&D expenses for the quarter were approximately $200 million, an increase of 7% on a sequential basis and an increase of about 12% from the same period a year ago. This was in line with the midpoint of our original guidance of $203 million. SG&A expenses for the quarter were approximately $55 million, an increase of 8% sequentially and a decrease of approximately 2% from the year-ago period. This was slightly above the midpoint of our prior guidance of $52 million. The sequential increase in operating expense was a result of higher legal expenses, higher employee-related costs and new product introductions. This resulted in non-GAAP operating margin of approximately 30.7%, down about 100 basis points from the 31.7% operating margin reported in the prior quarter, an improvement of about 24 points from the same period a year ago. Net interest expense and other income was an expense of approximately $3.8 million. This was lower than our original target, primarily due to foreign exchange effects and our tax accrual accounts. On a non-GAAP basis, we realized a tax benefit of approximately $1 million, better than our prior guidance of the $2 million expense. Our non-GAAP net income for the first quarter was approximately $260 million or $0.38 per diluted share, a sequential decrease of $0.02 per share. During the same period a year ago, we earned $32 million or $0.05 per share. The shares used to compute diluted non-GAAP EPS during the first quarter were approximately 681 million, up from 672 million shares in the prior quarter and higher than the 637 million shares reported in the year-ago period. Let me now summarize our Q1 results on a GAAP basis. We generated GAAP net income of approximately $206 million or $0.30 per share in the first quarter, essentially flat with the $205 million or $0.31 per share in the prior quarter and better than the $0.18 per share loss we reported in the same period a year ago. The difference between our GAAP and non-GAAP results during the first quarter of fiscal 2011 was due to stock-based compensation expense of approximately $27 million or about $0.04 per diluted share, amortization of intangibles representing approximately $23 million or about $0.03 per diluted share and approximately $4 million or $0.01 per diluted share representing the historical portion of a settlement related to an IP infringement lawsuit. Now, I'd like to review our balance sheet as of the end of our first quarter. Cash and short-term investments were approximately $2.1 billion, up about $282 million sequentially and up approximately $1 billion from the same period a year ago. Cash flow from operations for the first quarter was approximately $256 million, as compared to $281 million reported in the fourth quarter and up from the $145 million reported in the same period a year ago. Free cash flow for the first quarter was approximately $237 million, representing a 28% free cash flow margin, down 6% on a sequential basis and an 80% improvement from the $132 million in free cash flow reported in the year-ago period. Accounts receivable was approximately $449 million, up about $92 million sequentially, reflecting increased shipment later in the quarter and up $163 million as compared to the same period a year ago. DSO was 43 days, up about two days sequentially and down just over a day from the same period a year ago and in line on the low side of historical norms. Net inventory at the end of the first quarter were approximately $207 million, down 14% from the $242 million reported in the fourth quarter. Net inventories increased $3 million or 1% on a year-on-year basis. Days of inventory were about 59 days, down five days sequentially from the 64 days reported in the previous quarter and down 31 days from the year-ago period. We continue to run with lean inventory, despite our efforts to increase our inventory position and improve our customer serviceability. However, tightness in our supply chain, combined with robust demand for our new products, continued to put pressure on our inventory position. We expect that situation to continue into Q2. Accounts payable were $289 million, up about $11 million sequentially and up $122 million on a year-on-year basis. Now, I'd like to turn to our expectations for the second fiscal quarter of 2011. We currently project second quarter revenues in the range of $900 million to $930 million, a sequential increase of 5% to 9%. As I have indicated, the growth we experienced in the last quarter, and expect to continue into this quarter, is a lesser function of end market growth but rather due to new products and customers, resulting in share gains from the investments we have made in the past. We continue to monitor the end markets. And we'll put our customers to manage inventory, cautious about any channel inventory build. We currently project non-GAAP gross margin in a range of 59% to 60%, in line with our long-term model, but reflecting a modest downward bias at the midpoint due to accommodation of product mix and the potential for margin compression due to tighter supply constraints. We currently anticipate non-GAAP operating expenses to be approximately $265 million plus or minus $5 million. At the midpoint, we anticipate R&D expenses to be approximately $210 million and SG&A expenses of approximately $55 million. As we get more comfortable with revenue growth from the new products, we'll continue to make the necessary investment to support our anticipated growth while maintaining our best-in-class margins. The primary drivers of the sequential increase in operating expenses, additional new hires, salary and benefit related-expenses and increased new product introduction expense. At the midpoint of our range, our guidance should translate into an operating margin of approximately 31%, plus or minus about a point. The combination of interest expense and other income together should net out to be approximately $1 million benefit. Non-GAAP tax expense should be approximately $3 million to $5 million. We currently believe that diluted share count will be approximately 688 million shares and project non-GAAP EPS to be in the range of $0.38 to $0.43 per share. On the balance sheet, we currently expect to generate approximately $270 million in free cash flow during the quarter. We anticipate our cash balance to be about $2.35 billion, excluding any special items or M&A activity. We currently expect our GAAP EPS to be lower than our non-GAAP EPS by about $0.07 per share, plus or minus $0.01. About $0.03 of this difference is related to amortization of intangibles and $0.04 of stock-based compensation expense. Now I'd like to turn the call over to the operator to begin the Q&A portion of the call. Keana?

[Operator Instructions] We are now ready for our first question, which comes from the line of Glen Yeung of Citigroup. Glen Yeung - Citigroup Inc: Top of the mind for a lot of investors these days is what is going on in Europe, and to maybe a lesser extent, what's going on in China? I wonder if you guys can address anything you maybe seeing there, if you're not seeing it, that's fine too. And see if there's any change in order patterns or anything that you might detect in those regions?

Nothing specific, Glen, in our order patterns. We are aware that the economic thing, particularly in Europe, we see lesser in China. But it could affect some demand particularly on the PC side. But we haven't seen anything specific in our order patterns yet. It's questionable how big that could be. I think this is more of a macroeconomic issue, but anything specific. Glen Yeung - Citigroup Inc: One of the other elements that plagues the industry today is a shortage of capacity. I wonder if you can do two things. One, address the change in that shortage, did you see more short or less short as the quarter progressed? And then secondly in light of that shortness, even with some weakness perhaps in Europe, how do you see that shortage situation progressing over the course of the year?

I think we've been -- earlier announced some customers that talk about tightness of supply. It's probably a slight improvement for the current quarter, Q2. I see it's probably a slight improvement as the quarter progressed. Our bigger concerns has been for the second half of the year, when as we've described in previous calls, a lot of the new customers, new design wins, new opportunities that we want, we expect to ramp later this year and into next year. Our bigger concerns has been in that part of it. And that's more a function of working with our suppliers to improve this situation. So that has improved substantially, I consider it still tight. But that's more working in alignment with [indiscernible] partners and our other suppliers to improve that position. So a short answer, continued tightness near term, maybe a moderate improvement in the last couple of months, but long term, we think we'll get better alignment with suppliers on the second half of the year as we anticipate some improvement in our revenue position.

Our next question comes from the line of James Schneider of Goldman Sachs. James Schneider - Goldman Sachs Group Inc.: I guess some likely question was asked before about demand in Europe and what effect that might be having. Can you give any kind of perspective about what you're seeing into Q3? Whether your order book is any further updated than it normally is? And what you expect in terms of normal seasonality going into Q3? Or do you think it's going to be normal, or better than normal or worse?

Our order patterns wouldn't play out for Q3 as much. It's better to see today than a year ago or two years ago, but that's more related to supply than it is to a demand situation. So I don't think we can add any color, Jim, to the good question of what that's playing out. Might be continuously -- the third quarter is driven by back-to-school demand, and that's less of a discretionary issue. I've always maintained for years that's lesser of a discretionary issue, until when you get to Christmas, which may be more affected by it. Currency erosion may affect that a little bit, but I think Q3. . .

Both of its side. Because if euros get worse, so they are purchasing, it's the other way around, yes.

But I think there might be some moderate impact because of the currency. But the issue, I think, in Q3 is more back-to-school type demand. Just to reiterate, we view that less discretionary than say, for the Christmas or end-of-year period. James Schneider - Goldman Sachs Group Inc.: On the OpEx line, I mean, clearly that's increased in the last couple of quarters, as you guys have had better-than-seasonal revenue growth along with that. Can you talk about how you might expect OpEx to trend for the rest of the year?

I think we've been consistent. And I think we need to put it in a couple of things. We've been consistent in two things: About our design pipeline and about new products and that inflection point. And I think we've demonstrated that in the current quarter, the Q2, that wave's picking up. In the past, we've talked about significant opportunities, mobile, wireless, storage being the leading part of that, but also in networking. So I think that's the revenue part of it. And as we get closer to that confidence and we're getting closer as days go by, we've said we're going to increase expenses to support that. There's no way we can support that level of revenue growth without concurrently increasing some expenses to support that. These are new customers, new programs that requires a fair amount of support. So we've said this year we'll ramp up. We increased to about $17 million last quarter. We'll increase it again $10 million next quarter. I don't see any big step-up functions, but there's the possibility of it showing some revenue increase. The one thing I would remind people, our business model continues to demonstrate that, where we're still growing the revenues significantly, we're still generating 31% operating margins. And I think that's a reasonable number in our long-term model.

You should also expect that we will continue to invest in advanced process technology. So the cost of mask, the cost of tools, cap [ph] tools, a lot of things will continue to increase over time. And we have to do that because these products are the one that were going to generate revenues a year and a half from now. So okay, we will continue to strengthen our position, obviously. So definitely expenses will continue to grow. There's no way to get out from that.

But we are at record revenue levels in the last quarter and increasing that for the quarters, record new levels in the company history. And expenses are still below what the peaks would have been. So keeping, I think, Jim, just the focus on operating margin and cash flow, we continued to build up our best-in-class on those metrics, and we will manage our revenue growth and our expenses prudently.

Our next question comes from the line of John Pitzer of Credit Suisse. John Pitzer - Crédit Suisse AG: Just around inventory and supply. I'm kind of curious, Clyde, when you look at the drop in inventory and the supply tightness, is that equal among the three business units? Or are you seeing more tightness in some than others? And are you worried about, especially in the mobility and the wireless, whether or not supply constraints will limit growth going into the back half of the year?

No, I don't think it's any particular segment. I think it's fairly broad. We use one particular foundry. I think where you might see tightness, John, and this question is to what's the newer geometric. So when you get a 40 nanometer, I think, that's when we better get cautious. Now, keep in mind, we aren't shipping any 40-nanometer products today or probably the next quarter. So I think that is probably what I described earlier as future problem. But today, there is no differentiation amongst the end markets. John Pitzer - Crédit Suisse AG: And then my second question just on the hard drive side of things, along with concerns over Europe, there's been a lot of chatter about some cutbacks in the PC supply chain. I know you guys guided April, sort of the typical seasonal. Are you guys seeing anything in the order patterns from the HDD customers that make you worried? And when can we start to see some market share gain as we move into the back half of the year?

One thing I'd remind investors, our quarter ends in July. Sometimes that works for us or against us. But that helps us here because as you get into July, you certainly need to get that bump up for back-to-school. So when you look at it, it's a typical seasonal pattern. I know there's a lot of noise written out there about June cutoff and about demand moving from June to July at some of the PC or end channel. That wouldn't affect our quarter, aggregate quarter much at all. So I think PCs, I think we expect some moderate impact. We've not seen it in the order patterns right now. It's probably the noise right now.

But orders are getting laptops also. It's a bigger part of the business than the PCs. And the cycle, the replacement cycle for laptops also at a much higher rate, as much faster rate than PC. So that also helpful have been helpful to the Storage business.

Our next question comes from the line of Harlan Sur of JP Morgan. Harlan Sur - JP Morgan Chase & Co: You've mentioned previously that you're seeing the inflection point in revenue growth that you anticipated last quarter. And so along those lines, with the strong growth in your Mobile and Wireless division expected for this quarter, can you maybe just provide us with a little bit more detail, your RIM business versus your OPhone business, are they both seeing strong acceleration or is one driving the majority of the growth? Any color here would be helpful.

We have a policy that we want to maintain of not commenting on specific customers. And unfortunately, implicit in your question is about specific customers. So I think we should let our customers comment about their business. I would say we expect improvement across all our customers, existing and new. We've seen improvements in the last quarter. We expect that, as I have mentioned, to continue to increase, and that will accelerate as we go throughout the year. OPhone is probably ahead of us, but we think that's on track. And the shipments in that will really be more moderate. Harlan Sur - JP Morgan Chase & Co: And then, Clyde, to the prior questions, I mean, the risk of not having enough capacity seems to be getting larger and larger here, especially as your revenues continue to grow here, and especially as your new products continue to ramp. I know you mentioned you're working with some of your manufacturing partners. Can you help us understand like what are some of the specific actions the team is working on? I mean, are you qualifying more parts at different foundries? Are you being more aggressive on technology migrations? So try to get more type or way [ph] (41:33) for any color here would be helpful.

I think it's better improvement. We are working closer. The biggest change, I think, in the last few months is improving our forecast process. Because when you're talking about new products, primarily, internally and not with our customers, is the best indicator of it. It's hard for externally, whether our foundry or you guys to figure that out. So the most improvement we've made is taking a longer view of our demand requirements, say, over a 12-month period. Whereas, a year ago, we were taking more of a shorter view. So today, it's more process-oriented along working with our manufacturing partners on a longer-term forecast between our new customers, new products and manufacturing partners to extend that view. And that's where I think we see a fair amount of improvement for use in that process. And that's some of the growing pains we're going to do at Marvell as we scale the company up. That's one of the things we've learned. So I know it's not certain answer to your question, but it's more business process, longer-term horizons that we are putting.

Well, let me just say that, there are obviously steps that we could do to improve the situation, like for example, improving our testing methodology so that we can improve yield; designing new products for the future to, let's say, to look at what functions are really necessary, what functions are not necessaries? And certain product lines targeting for the mass market that requires extreme high volumes, may requires -- they'll be moving certain functions to make the dices smaller. But those are more on a longer-term basis. In the near term, it's really, as Clyde says, working with our customers to looking entirely which of the forecasts, better forecast on our side, better visibility to our suppliers, so...

Our next question comes from the line of Adam Benjamin of Jefferies. Adam Benjamin - Jefferies & Company, Inc.: Just a follow-up on the supply. Not to beat a dead horse, but maybe asked a different way, obviously, you got a lot of measures that you can do more in the longer term. But as you mentioned, Clyde, you saw that supply was easing a little bit in the last month or so. If you look out to the rest of the year, is there some indication that maybe you're getting some better foundry capacity, or that actually, your main foundry is actually losing a little bit?

I didn't say the last month, Adam, I said in the last few months. And I know people are looking for little data points and I'm trying to avoid that. If you look in the longer term, if you look at the foundry, they have announced significant capacity increases in the orders of billions of dollars, and cumulatively, probably north of $10 billion in the last six months or so. So as that capacity comes online, it comes on conveniently for us in the time frame where we had the biggest bottleneck, i.e. later this year or next year. So I think we feel better that the foundries are beginning to add capacity, and that makes us a lot more comfortable. Adam Benjamin - Jefferies & Company, Inc.: As it relates to the Storage, HDD guidance are flat to down slightly, you mentioned seasonal. With respect to that guidance, does that include any new ramps of the customers that we've talked about?

Not material yet at this point. We're just talking about the ramp of new customers.

That's probably quarter...

Yes, small. Very small here. Let's assume like it would be further away.

Our next question comes from the line of Sanjay Devgan of Morgan Stanley. Sanjay Devgan - Morgan Stanley: Just qualitatively speaking, if you could, touching on the backlog coverage, is it reasonable to assume that your coverage for the current outlook is at similar levels to last quarter?

Yes. From last quarter, yes. From a year ago, much better coverage. But the last quarter, I think we were in the 90% range. And if you looked at our midpoint of guidance, we're probably trending towards that. Sanjay Devgan - Morgan Stanley: And then maybe a question for Sehat. Sehat, a lot has been made recently about the iPad and the launch of products similar to that from other vendors. I was wondering if you can just talk about how Marvell is positioned to capture that wave as it comes in? And what are your thoughts in that market as an opportunity for you guys?

Yes, sure. Obviously, this is an area that we've been working on for the last several years. This is exactly the kind of markets that we are targeting, markets that require high-performance processors, market that requires high-performance graphics, CD graphic engine, markets that require full HD functionalities. So if you will look at our product that we introduced early this year, the ARMADA family, this is the market they're targeting for the next-generation types of iPad tablets. So as you can see that this is just a higher-end version of our cell phone chip. Cell phone, typically, we incorporate slightly less performance and less graphics capability, less video capability. And on the tablet types, okay, we beef up those functions.

If I may add to that, we have a solution beyond processes. We have WiFi, and other...

Yes, WiFi, circuit servers. Not just WiFi, this is our strength. Okay, we have Ethernet, Gigabit Ethernet, WiFis, combos, okay, FM radios. We've got like WiFi, Bluetooth, FMs, and Ethernet, Gigabit Ethernets, and power managements, battery life, battery chargers. This is our deal, our new technology. So this is an area that -- oh, also the basement. So it depends on the market, but I would say, we're targeted for a market in China, and we have a TD-SCDMA basement that will be a target in China, if the target market is seen in other parts of the world, and we have 3G basements. So in a sense, this is a market that is similar, in terms of size of market, the volumes, post-opportunities similar to smartphone, but it comes with a bigger phone factor. So I usually talk to people in terms of what this tablet will fit. This tablet will fit, say, between the laptop and a smartphone market. But the volume is similar. Both close or similar to a smartphone market than a laptop market. So this means that this is a huge opportunity for companies like us that can develop similar power, high-performance application processor and complete solutions.

Our next question comes from the line of Ambrish Srivastava of BMO Capital Markets.

This is Emily Scudder calling in for Ambrish. On channel inventory, you mentioned you continue to monitor channel inventory. What is your assessment of channel inventory? And can you please educate us on what normal patterns are and where we are?

The first part of your question is what...

Channel inventory.

Yes, I know. But was it definition of channel inventories, is that what you're asking?

No, just what is your assessment of the levels right now?

I don't want to make us an experts of channel inventory, broadly speaking, the way you would look at it. It's in our distribution channel. We know what's in our hubs. More than half of our revenues are in consignment basis. So that's really our channel and that's reflected in our balance sheet. Another 20% or so is distribution and the rest on direct. So our hub inventory, we described that earlier. We see that as relatively lean. We don't see it build up. We do have a fair amount of control over that. And again, that's north of half of our revenues in that front. On the distributor side of it, there were some improvement in distributor inventory. We monitor that. We increase that. And that was conscious, because as I indicated earlier, you need to do that leading up to the back-to-school season that's over there. So I'd say, compared to the last quarter, there'll be higher levels of inventory in our distributors, but we consciously do that to get that primed up ahead of back-to-school. Beyond that, I think it's not fair for us to comment broadly on the channel. I think you guys on the sell side write enough about it, so...

Right. I guess, I think, it's good to reiterate. We need to reiterate that a lot of our businesses, our customers fall in just in time. When they need the product, they buy -- they pull in products from our side. So there's really no incentive for them to pull in more than what they need. So that's the beauty about the significant portion of our business like this.

If I could just have one thing, Emily, also, our distribution model runs on a sell-through model. So we're not -- the inventory of the distributors sits on our balance sheet. So it's on a sell-in model.

And then on HDDs, do you think that new customer ramps will become meaningful in the third quarter or not?

Remember, our HDD is a sizable business. Any customer ramp -- a few bunch of customer ramps. So if there's ever any, it's all going to be small percentage. It cannot be sizable. Usually, sizable only in the second or third quarter after the initial ramp.

Our next question comes from the line of Quinn Bolton of Needham & Company. Quinn Bolton - Needham & Company, LLC: You guys gave some good detail on the new products' strength. And in the first fiscal quarter, I think you talked about new products reaching 20% of sales in the second quarter. Is that still mostly from the Mobile and Wireless product group? Or are we starting to see contribution from some of the other two business segments?

It's still mostly Mobile and Wireless. But Sehat mentioned in his statements, in Networking, you see we expect low double-digit sequential improvement, and a substantial portion of that would be from new products in that area as well. Quinn Bolton - Needham & Company, LLC: Is that mostly on the enterprise switching, or is that more on the client?

Enterprise. Quinn Bolton - Needham & Company, LLC: The TD-SCDMA communication processors like you've previously talked about sort of seeing that ramp late this year, is that still the right time frame to be thinking about?

Yes. Still expected to do that. The demand in the customer engagement is very expensive.

Our next question comes from the line of Kevin Cassidy of Thomas Weisel and Partners [Thomas Weisel Partners]. Kevin Cassidy - Thomas Weisel Partners Equity Research: It seems everything came in line with what your expectations were, except the Networking group, that being down 5% quarter-over-quarter. I wonder if you could say a little more on what's happening there. It seems like enterprise networking is rebounding other places in the market.

Yes, there are some parts of it. I think, and we have seen some of the people playing the supply chain may have had better results in that quarter or similar quarter than we did. I think they are customer specific. We actually track that. Our profile resemble the same, except that certain customers may have been tightening up inventory, some of our customers better than others. So I think the trends are similar. In Q2, you see that improving. Part of it is end market, part of that is new product. So in the Q1, I'm not at all concerned. We know exactly where that was. We know exactly why. And we saw that improvement in the subsequent quarter. Kevin Cassidy - Thomas Weisel Partners Equity Research: And maybe as you're talking about that as going forward in new products, is that higher gross margin than corporate average?

We don't comment about gross margin about any specific segment of ours [ph].

Our next question comes from the line of Srini Pajjuri of CLSA. Srini Pajjuri - Calyon Securities (USA): Clyde, on the gross margins coming down a bit here, you said mix is impacting that. I'm just wondering, as you look into the second half in 2011, obviously, you have storage design wins ramping. Just wondering how that impacts gross margins, going forward. Should we model kind of gross margins coming down a bit here? Do you think that will reverse in the next few quarters?

Again, like the last caller, we don't comment about gross margin about any specific part of our business. What I would suggest you model, Srini, is gross margin, 59% to 60% this quarter, as I indicated earlier, and 58% to 60% in subsequent period. You get to pick any number you want in there. And I think we will stick with that, as we go forward.

I just want to add maybe a little bit concern that may be related to the supply tightness. So related to gross margin, for products they build on the existing process technologies, I think the gross margins, roughly, is about the same. Okay, what I'm focusing about later when you go to more advanced process technology of 40 nanometers, 20 nanometers when the capacity is not going to be widely available, that's when the gross -- I will be really be concerned at that time. So of course, we are taking some actions to make sure that we don't get in trouble when we go to 20 nanometers on the gross margin side. Srini Pajjuri - Calyon Securities (USA): And then Clyde, I know you have $2 billion and counting. I'm just wondering, what are your plans for the cash? Do you plan to buy back or pay a dividend or something else?

Yes, okay, I made my statement several quarters ago that we'll hold the cash, okay, for now. A lot of our customers are getting much, much bigger. We have much bigger customers now. And a lot of our customers are actually more comfortable dealing with suppliers. They are very strong financially, because, okay, they are betting their lives. They are betting the existence of their companies on us. So they want to see that we will be able to survive under any conditions, even if there is a possible downturn in the next couple of years, we will stay strong. So I don't know, Clyde, you want to add under there?

Sehat, I think that's true. We acknowledge certain investor's questions about it. We've had discussions about it. Obviously, nothing to announce. But I would also add to what Sehat said, if you look at what the market is telling all of us in the last month or so, and there's been several calls on here about Europe. So there's still a lot of questions about macroeconomic issues. And I think the prudent thing to do is to let's observe and take that into consideration before you implement any share buyback or any of that. So I think we continue to be cautious about it, and there are a number of factors included in what's out there that goes into the equation. Srini Pajjuri - Calyon Securities (USA): Sehat, if I may, just a follow-up to that answer. Obviously, you've made some successful acquisitions in the past. And if I look at your Storage business being 50% of your sales, and as new wins ramp, it looks like that could go to as much as 60% of sales. So I'm just wondering, does it make sense for Marvell to get into a new larger market through another acquisition in the next couple of years? If not, why not?

We have done that. We have done that. So several years ago, we have acquired the Intel cell phone and application processor business. This market seem bigger than the potential market. The potential market is even bigger than the overall storage market. And not just on the volume point of view, also from the chip size point of view, or the number of chips that we can sell into the given system. So we've done that already. So there are a few others that we're looking at, but nothing would seem to be as big as that size. But some of them, we are actively engaging working internally. Some of them is actually, we have been working over the last four years or so, internally. Internal development, not through acquisitions. So there are quite a few significant of our expenses in the last four years. You could consider those are just equivalent to like buying a small company, which we could have done, but we decided to go a different route because we want to have control in our destiny because some of this technology that we want to have, not just being useful to the market, but also be useful across the market. Give you example, HDTV. We spent four years to develop our HDTV technology, because this market is not just for HDD business or Set-Top Box business or Blu-ray Player business, but it's also being used for smartphones and tablets. So okay, we don't put control on this technology on our hand. We will have many different solution down the road. Okay, so we decided four years ago to beat the bullet, and spend the money, and do it internally and do it right.

Our next question comes from the line of Craig Berger of FBR Capital Markets. Craig Berger - FBR Capital Markets & Co.: One of your main hard drive competitor is talking about ramping in the new customers over the next couple of years. Do you have any thoughts on whether you can keep those customers' sole source, and what gross margins might do if they do penetrate?

Yes, so I don't know how much I want to respond to this because I think I've been asked this questions more than a dozen times. Okay, if this is the same particular competitor that I think of, if this is a competitor that we compete against starting about in 1996 -- 1996 when we first compete with them. So there's the same management, okay, in that group, okay, just like I've been saying that getting design wins from us and all those other stuff. But the truth is, okay, we have superior technology. We have lower power. Our chip does not need to have heart of [indiscernible] to protect the technician from touching the chip, so that they will not burn their fingers. So our chips, okay, get better yield in the end customer. And our customer make more money as using our chips. So I don't know what else I can say about it. But I mean, you just need to ask them if you like be more specific, like which product are they talking about. Craig Berger - FBR Capital Markets & Co.: And then I wanted to ask on the WiFi combo chips. Can you talk about sort of what products beyond the gaming consoles that you're shipping into now? What your expectations are. I think you said it was a third of your overall WiFi business, which just seems pretty big.

Yes, the biggest marketable combo devices, eventually, will be, one, will be the phone, the smartphones. And the smartphones are going to take over or going to replace feature phones. So that's going to get bigger. Second, okay, the tablets. The tablets was known to have combo devices. So that's possibly going to be big. And laptop, I'm not sure if laptops will need combo devices. But if they do, it's a reasonable-sized market. Oh, the other part probably could be if you consider as any consumer like TVs, may or may not have combo devices. But for sure, if you listen to some market reports out there, all TVs will have Ethernet, whether they have wired Ethernets or wireless Ethernet, or any other kinds of connectivities. They're all going to be connected. So some of this device will also go in the TV markets or Blu-ray players. Craig Berger - FBR Capital Markets & Co.: Do you guys have any smartphone combo chip wins? And one for Clyde, what should we do with taxes, going forward, Clyde?

So obviously, we have many design wins on the combo device in the smartphone markets. If you look at our reference designs on our smartphone, I mean, just look at one aspect of the business on the smartphones or the communication processor side, all the reference design comes with our WiFi. So all the software, everything's already been developed with that in mind.

Yes, I think we provided a model last quarter, but I believe it was somewhere between 5% and 8% tax rate. I think you should do that. I recognize that in any given quarter, it is one for example, lower than that. But in a sustained business, I think 5% to 8% would be a reasonable amount. The quarterly accounting of that can sometime get with sort of around with tax reserves you take for positions in the future. You revisit that every quarter. So it's hard to provide specific, other than what we gave you for this quarter. But in a longer-term basis, I'd go with 5% to 8%.

Well, everyone, thank you very much for your time today and your continued interest in Marvell. Real quick reminder, we'll be attending several investor conferences over the next several weeks. On June 2, we'll be attending the D.A. Davidson Technology Forum. On June 3, we'll be at the Bank of America U.S. Technology Conference. On June 9, we'll be attending the UBS Global Technology Conference. And on June 10, we'll be at the RBC Technology Conference. All of these conferences are in New York City. And then lastly, on June 23, we will be attending the NASDAQ OMX 24th Investor Program being held in London. We thank you for your interest in Marvell. I look forward to speaking with you at these upcoming conferences on the coming months. And thank you very much for your interest today. Goodbye now.

Thank you.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect and have a great day.