MARVELL TECHNOLOGY GROUP LTD 
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which are subject to the "safe harbor" created by those sections. These statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results to differ materially from those implied by the forward-looking statements. Words such as "anticipates," "expects," "intends," "plans," "projects," "believes," "seeks," "estimates," "forecasts," "targets," "may," "can," "will," "would" and similar expressions identify such forward-looking statements.
Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those indicated in the forward-looking statements. Factors that could cause actual results to differ materially from those predicted include, but are not limited to:
•risks related to the impact of the COVID-19 pandemic or other future pandemics, on the global economy and on our customers, suppliers, employees and business; •risks related to our ability to scale our business; •risks related to the extension of lead time due to supply chain disruptions, component shortages that impact the costs and production of our products and our kitting process, and constrained availability from other electronic suppliers impacting our customers' ability to ship their products, which in turn may adversely impact our sales to those customers; •risks related to changes in general economic conditions, such as economic slowdowns and recessions, inflation and stagflation, or political conditions, such as the tariffs and trade restrictions withChina ,Russia and other foreign nations, and specific conditions in the end markets we address, including the continuing volatility in the technology sector and semiconductor industry; •risks related to the ability of our customers, particularly in jurisdictions such asChina that may be subject to trade restrictions (including the need to obtain export licenses) to develop their own solutions or acquire fully developed solutions from third-parties; •risks related to cancellations, rescheduling or deferrals of significant customer orders or shipments, as well as the ability of our customers to manage inventory; •risks related to our ability to successfully integrate and to realize anticipated synergies, on a timely basis or at all, in connection with our acquisitions, divestitures, significant investments or strategic transactions; •risks related to our debt obligations; •risks related to the effects of any future acquisitions, divestitures or significant investments; •risks related to the highly competitive nature of the end markets we serve, particularly within the semiconductor and infrastructure industries; •risks related to our dependence on a few customers for a significant portion of our revenue; •risks related to our ability to execute on changes in strategy and realize the expected benefits from restructuring activities; •risks related to our ability to maintain a competitive cost structure for our manufacturing and assembly and test processes and our reliance on third parties to produce our products; •risks related to our ability to attract, retain and motivate a highly skilled workforce, especially engineering, managerial, sales and marketing personnel; •risks related to any current and future litigation and regulatory investigations that could result in substantial costs and a diversion of management's attention and resources that are needed to successfully maintain and grow our business; •risks related to gain or loss of a design win or key customer; •risks related to seasonality or volatility related to sales into the infrastructure market; •risks related to failures to qualify our products or our suppliers' manufacturing lines; •risks related to our ability to develop and introduce new and enhanced products, in particular in the 5G and Cloud markets, in a timely and effective manner, as well as our ability to anticipate and adapt to changes in technology; •risks related to failures to protect our intellectual property, particularly outsidethe United States ; 27
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Table of Contents •risks related to the potential impact of a significant natural disasters, or the effects of climate change (such as drought, flooding, wildfires, increased storm severity and sea level rise), particularly in certain regions in which we operate or own buildings, such asSanta Clara, California , and where our third party suppliers operate, such asTaiwan and elsewhere in thePacific Rim ; •risks related to our Environmental, Social and Governance (ESG) programs; •risks related to severe financial hardship or bankruptcy of one or more of our major customers; and •risks related to failures of our customers to agree to pay for NRE (non-recurring engineering) costs or failure to pay enough to cover the costs we incur in connection with NREs.
Additional factors which could cause actual results to differ materially include those set forth in the following discussion, as well as the risks discussed in Part II, Item 1A, "Risk Factors," and other sections of this Quarterly Report on Form 10-Q. These forward-looking statements speak only as of the date hereof. We undertake no obligation to update any forward-looking statements.
Overview
We are a leading supplier of infrastructure semiconductor solutions, spanning the data center core to network edge. We are a fabless semiconductor supplier of high-performance standard and semi-custom products with core strengths in developing and scaling complex System-on-a-Chip architectures, integrating analog, mixed-signal and digital signal processing functionality. Leveraging leading intellectual property and deep system-level expertise, as well as highly innovative security firmware, our solutions are empowering the data economy and enabling the data center, carrier infrastructure, enterprise networking, consumer, and automotive/industrial end markets.
Net revenue in the first quarter of fiscal 2023 was
In response to increased demand from customers for our products, our operations team is continuing to ramp production with our global supply chain partners. However, we are continuing to experience a number of industry-wide supply constraints affecting the type of high complexity products we provide for data infrastructure. These supply challenges are currently limiting our ability to fully satisfy the increase in demand for some of our products. To secure additional capacity, we entered into capacity reservation arrangements with certain foundries and test & assembly partners. See "Note 5 - Commitments and Contingencies" in the Notes to the Unaudited Condensed Consolidated Financial Statements for additional information.
Securing capacity for growth remains a high priority for our operations team, even as this supply expansion comes with an increase in input costs. As we have done throughout this period of supply constraints, we are working with our customers to adjust prices to offset the impact of these cost increases, which lets us jointly benefit from sustained growth.
We continue to monitor the impact of COVID-19 on our business. While our offices around the world generally remain open to enable critical on-site business functions in accordance with local government guidelines, in response to the COVID-19 pandemic we modified our workplace practices globally, which resulted in many of our employees working remotely for extended periods of time. As a result, many of our employees have expressed a preference to continue to work from home two to three days a week post-pandemic. In response, we adopted a hybrid work policy where most employees split their time between home and the office. We expect COVID-19 to continue to impact our business, for a further discussion of the uncertainties and business risks associated with the COVID-19 pandemic, see Part II, Item 1A, "Risk Factors," including but not limited to the risk detailed under the caption "We face risks related to the COVID-19 pandemic which currently has, and may continue in the future to, significantly disrupt and adversely impact our manufacturing, research and development, operations, sales and financial results."
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We expect that the
Capital Return Program. We remain committed to delivering stockholder value
through our stock repurchase and dividend programs. Under the program authorized
by our Board of Directors, we may repurchase shares of stock in the open-market
or through privately negotiated transactions. The extent to which we repurchase
our stock and the timing of such repurchases will depend upon market conditions,
legal rules and regulations, and other corporate considerations, as determined
by our management team. We resumed our stock repurchase program in the first
quarter of fiscal 2023, which had been temporarily suspended in fiscal 2021 to
preserve cash during the COVID-19 pandemic. During the three months ended
As of
Subsequent to quarter end through
Cash and Short-Term Investments. Our cash and cash equivalents were
Sales and Customer Composition. Our accounts receivable was concentrated with
four customers at
Three Months Ended
April 30, May 1,
2022 2021
Distributor:
Distributor A 19 % 19 %
We continuously monitor the creditworthiness of our customers and distributors and believe these distributors' sales to diverse end customers and geographies further serve to mitigate our exposure to credit risk.
Most of our sales are made to customers located outside of
The development process for our products is long, which may cause us to experience a delay between the time we incur expenses and the time revenue is generated from these expenditures. We anticipate that the rate of new orders may vary significantly from quarter to quarter. For risks related to our sales cycle, see Part II, Item 1A, "Risk Factors," including but not limited to the risk detailed under the caption "We are subject to order and shipment uncertainties. If we are unable to accurately predict customer demand, we may hold excess or obsolete inventory, which would reduce our gross margin. Conversely, we may have insufficient inventory, which would result in lost revenue opportunities and potential loss of market share as well as damaged customer relationships."
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Critical Accounting Policies and Estimates
There have been no material changes during the three months ended
In the current macroeconomic environment affected by COVID-19, our estimates could require increased judgment and carry a higher degree of variability and volatility. We continue to monitor and assess our estimates in light of developments, and as events continue to evolve and additional information becomes available, our estimates may change materially in future periods.
Results of Operations
The following table sets forth information derived from our Unaudited Condensed Consolidated Statements of Operations expressed as a percentage of net revenue:
Three Months Ended
April 30, May 1,
2022 2021
Net revenue 100.0 % 100.0 %
Cost of goods sold 48.1 49.8
Gross profit 51.9 50.2
Operating expenses:
Research and development 30.7 34.4
Selling, general and administrative 16.3 24.2
Restructuring related charges 0.1 1.5
Total operating expenses 47.1 60.1
Operating income (loss) 4.8 (9.9)
Interest income - -
Interest expense (2.5) (4.2)
Other income, net 0.4 0.1
Income (loss) before income taxes 2.7 (14.0)
Provision (benefit) for income taxes 14.2 (3.3)
Net loss (11.5) % (10.7) %
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Table of Contents Three months endedApril 30, 2022 andMay 1, 2021 Net Revenue Three Months Ended April 30, May 1, % 2022 2021 Change (in millions, except percentage) Net revenue$ 1,446.9 $ 832.3 73.8%
Our net revenue for the three months ended
Cost of Goods Sold and Gross Profit
Three Months Ended
April 30, May 1, %
2022 2021 Change
(in millions, except percentage)
Cost of goods sold $ 696.0 $ 414.1 68.1%
% of net revenue 48.1 % 49.8 %
Gross profit $ 750.9 $ 418.2 79.6%
% of net revenue 51.9 % 50.2 %
Cost of goods sold as a percentage of net revenue decreased for the three months
ended
Research and Development
Three Months Ended
April 30, May 1, %
2022 2021 Change
(in millions, except percentage)
Research and development $ 444.1 $ 286.1 55.2%
% of net revenue 30.7 % 34.4 %
Research and development expense increased by
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Selling, general and administrative
Three Months Ended
April 30, May 1, %
2022 2021 Change
(in millions, except percentage)
Selling, general and administrative $ 235.7 $ 201.5 17.0%
% of net revenue 16.3 % 24.2 %
Selling, general and administrative expense increased by
Restructuring Related Charges
Three Months Ended
April 30, May 1, %
2022 2021 Change
(in millions, except percentage)
Restructuring related charges $ 1.3 $ 12.9 (89.9)%
% of net revenue 0.1 % 1.5 %
We recognized
Interest Income
Three Months Ended
April 30, May 1, %
2022 2021 Change
(in millions, except percentage)
Interest income $ 0.5 $ 0.2 150.0%
% of net revenue - % - %
Interest income increased by $0.3 million in the three months ended April 30,
2022 compared to the three months ended May 1, 2021 due to higher interest rates
on our invested cash.
Interest Expense
Three Months Ended
April 30, May 1, %
2022 2021 Change
(in millions, except percentage)
Interest expense $ (36.3) $ (35.1) 3.4%
% of net revenue (2.5) % (4.2) %
Interest expense increased by
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Other Income, Net
Three Months Ended
April 30, May 1, %
2022 2021 Change
(in millions, except percentage)
Other income, net $ 5.2 $ 1.2 333.3%
% of net revenue 0.4 % 0.1 %
Other income, net, increased by
Provision (benefit) for Income Taxes
Three Months Ended
April 30, May 1, %
2022 2021 Change
(in millions, except percentage)
Provision (benefit) for income taxes $ 204.9 $ (27.8) (837.1)%
Our income tax expense for the three months ended
Our provision for incomes taxes may be affected by changes in the geographic mix of earnings with different applicable tax rates, acquisitions, changes in the realizability of deferred tax assets, accruals related to contingent tax liabilities and period-to-period changes in such accruals, the results of income tax audits, the expiration of statutes of limitations, the implementation of tax planning strategies, tax rulings, court decisions, settlements with tax authorities and changes in tax laws and regulations.
The ultimate realization of deferred tax assets depends upon the generation of future taxable income during the periods in which those assets become deductible or creditable. We evaluate the recoverability of these assets, weighing all positive and negative evidence, and provide or maintain a valuation allowance for these assets if it is more likely than not that some, or all, of the deferred tax assets will not be realized. If negative evidence exists, sufficient positive evidence is necessary to support a conclusion that a valuation allowance is not needed. We consider all available evidence such as our earnings history including the existence of cumulative income or losses, reversals of taxable temporary differences, projected future taxable income, and tax planning strategies. In future periods, it is possible that significant positive or negative evidence could arise that results in a change in our judgment with respect to the need for a valuation allowance, which could result in a tax benefit, or adversely affect our income tax provision, in the period of such change in judgment.
We also continuously evaluate potential changes to our legal structure in response to guidelines and requirements in various international tax jurisdictions where we conduct business. Additionally, please see the information in "Item 1A: Risk Factors" under the caption "Changes in existing taxation benefits, rules or practices may adversely affect our financial results."
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Table of Contents Liquidity and Capital Resources
Our principal source of liquidity as of
In
In
In
See "Note 4 - Debt" in the Notes to the Unaudited Condensed Consolidated Financial Statements for additional information.
We believe that our existing cash, cash equivalents, together with cash generated from operations, and funds from our 2020 Revolving Credit Facility will be sufficient to cover our working capital needs, capital expenditures, investment requirements and any declared dividends, repurchase of our common stock and commitments for at least the next twelve months. Our capital requirements will depend on many factors, including our rate of sales growth, market acceptance of our products, costs of securing access to adequate manufacturing capacity, the timing and extent of research and development projects and increases in operating expenses, all of which are subject to uncertainty.
To the extent that our existing cash and cash equivalents, together with cash generated by operations, and funds available under our 2020 Revolving Credit Facility are insufficient to fund our future activities, we may need to raise additional funds through public or private debt or equity financing. We may also acquire additional businesses, purchase assets or enter into other strategic arrangements in the future, which could also require us to seek debt or equity financing. Additional equity financing or convertible debt financing may be dilutive to our current stockholders. If we elect to raise additional funds, we may not be able to obtain such funds on a timely basis or on acceptable terms, if at all. In addition, the equity or debt securities that we issue may have rights, preferences or privileges senior to our common stock.
Future payment of a regular quarterly cash dividend on our common stock and our
planned repurchases of common stock will be subject to, among other things, the
best interests of the Company and our stockholders, our results of operations,
cash balances and future cash requirements, financial condition, developments in
ongoing litigation, statutory requirements under
Cash Flows from Operating Activities
Net cash flow provided by operating activities for the three months ended
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Net cash flow used in operating activities for the three months ended
Cash Flows from Investing Activities
For the three months ended
For the three months ended
Cash Flows from Financing Activities
For the three months ended
For the three months ended
Capital Resources and Material Cash Requirements
A summary of our capital resources and material cash requirements is presented
in Part II, Item 7, Management's Discussion and Analysis of Financial Condition
and Results of Operations, in our Annual Report on Form 10-K for the fiscal year
ended
Indemnification Obligations
See "Note 5 - Commitments and Contingencies" in the Notes to the Unaudited Condensed Consolidated Financial Statements set forth in Part I, Item 1 of this Quarterly Report on Form 10-Q.
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