Marvell Technology Group (MRVL)

Cost of Goods Sold

Cost of goods sold consists primarily of the costs of manufacturing, assembly and test of integrated circuit devices and related overhead costs, product warranty costs, royalties and compensation and associated costs relating to manufacturing support, logistics and quality assurance personnel, including stock-based compensation, excess and obsolescence provisions and purchase accounting adjustments. Cost of goods sold as a percentage of revenue for the three months ended May 2, 2009 compared to the three months ended May 3, 2008 increased due to higher warranty costs, the higher portion of overhead in cost due to the lower production levels and higher stock-based compensation expenses as less is capitalized due to the reduction in inventory levels. Partially offsetting the increase in cost of goods sold as a percentage of revenue was an improved mix of products sold and sales of product previously written down. Our cost of goods sold as a percentage of revenue may fluctuate in future periods due to, among other things, changes in the mix of products sold, the timing of production ramps of new products, increased pricing pressures from our customers and competitors, particularly in the consumer product markets that we are targeting, charges for obsolete or potentially excess inventory, changes in the costs charged by our manufacturing and test subcontractors, the introduction of new products with lower margins and product warranty costs.

Cost of Goods Sold

Cost of goods sold consists primarily of the costs of manufacturing, assembly and testing of integrated circuit devices and related overhead costs, product warranty costs, royalties and compensation and associated costs relating to manufacturing support, logistics and quality assurance personnel, excess and obsolescence provisions and purchase accounting adjustments. The increase in gross margin in fiscal 2009 compared to fiscal 2008 was primarily due to reduced costs for cellular and handset product resulting from the transition of manufacturing from Intel to our fabrication partners. In addition, cost of goods sold improved as we experienced lower material and manufacturing costs due to volume efficiencies and yield improvements. Gross margin also improved due to the mix of higher gross margin products sold in fiscal 2009 compared to fiscal 2008. Finally, lower excess and obsolescence provisions and higher sales of product previously written down in fiscal 2009 as compared to fiscal 2008 improved gross margin. Our gross margins may also fluctuate in future periods due to, among other things, changes in the mix of products sold, the timing of production ramps of new products, increased pricing pressures from our customers and competitors, particularly in the consumer product markets that we are targeting, charges for obsolete or potentially excess inventory, the levels of sales of product previously written down, changes in the costs charged by our manufacturing and test subcontractors, the introduction of new products with lower margins, product warranty costs and changes in the amount of development revenue recognized. We expect that cost of goods sold as a percentage of revenue in fiscal 2010 will decline moderately from the level in fiscal 2009 due to the benefits of our cost reduction programs.

Cost of Goods Sold

Cost of goods sold consists primarily of the costs of manufacturing, assembly and testing of integrated circuit devices and related overhead costs, product warranty costs, royalties and compensation and associated costs relating to manufacturing support, logistics and quality assurance personnel, excess and obsolescence provisions and purchase accounting adjustments. The increase in gross margin in fiscal 2009 compared to fiscal 2008 was primarily due to reduced costs for cellular and handset product resulting from the transition of manufacturing from Intel to our fabrication partners. In addition, cost of goods sold improved as we experienced lower material and manufacturing costs due to volume efficiencies and yield improvements. Gross margin also improved due to the mix of higher gross margin products sold in fiscal 2009 compared to fiscal 2008. Finally, lower excess and obsolescence provisions and higher sales of product previously written down in fiscal 2009 as compared to fiscal 2008 improved gross margin. Our gross margins may also fluctuate in future periods due to, among other things, changes in the mix of products sold, the timing of production ramps of new products, increased pricing pressures from our customers and competitors, particularly in the consumer product markets that we are targeting, charges for obsolete or potentially excess inventory, the levels of sales of product previously written down, changes in the costs charged by our manufacturing and test subcontractors, the introduction of new products with lower margins, product warranty costs and changes in the amount of development revenue recognized. We expect that cost of goods sold as a percentage of revenue in fiscal 2010 will decline moderately from the level in fiscal 2009 due to the benefits of our cost reduction programs.

Cost of Goods Sold

Cost of goods sold consists primarily of the costs of manufacturing, assembly and testing of integrated circuit devices and related overhead costs, product warranty costs, royalties and compensation and associated costs relating to manufacturing support, logistics and quality assurance personnel, including stock-based compensation and excess and obsolescence provisions and purchase accounting adjustments. The decrease in gross margin in fiscal 2008 compared to fiscal 2007 was primarily due to lower gross margin from the cellular and handset products which commenced shipment in November 2006 as a result of the acquisition of the ICAP Business, and due to higher inventory excess and obsolescence provisions. The inventory excess and obsolescence provision increased by $27.4 million in fiscal 2008 compared to fiscal 2007 from $34.7 million in fiscal 2007 to $62.1 million in fiscal 2008, respectively. The increase in excess and obsolescence was due to the mix and quantities on hand compared to forecasted demand for such products on hand including communications and applications processor products and wireless products. The cellular and handset inventory that we were contractually obligated to purchase under a supply agreement with Intel were recorded at estimated fair value as required under purchase accounting. Although we have met the contractual obligations under the original supply agreement and transitioned certain products to our fabrication partners, we anticipate that we will continue to source certain legacy application processor cellular and handset inventory from Intel pursuant to the terms of an amendment to the supply agreement. We recorded such inventory at what we believe to be above-market cost, which will adversely impact our gross margin relative to periods where we primarily purchased inventory at the minimum committed level. The supply agreement with Intel required us to purchase inventory earlier than anticipated product shipments to our customers resulting in higher levels of inventory and associated carrying costs. As a result, the higher levels of inventory increase our risk of holding excess and obsolete inventory. Our gross margin may also fluctuate in future periods due to, among other things, changes in the mix of products sold, the timing of production ramps of new products, increased pricing pressures from our customers and competitors, particularly in the consumer product markets that we are targeting, charges for obsolete or potentially excess inventory, changes in the costs charged by our manufacturing and test subcontractors, the introduction of new products with lower margin and product warranty costs and changes in the amount of development revenue recognized.

Cost of Goods Sold

Cost of goods sold consists primarily of the costs of manufacturing, assembly and testing of integrated circuit devices and related overhead costs, product warranty costs, royalties and compensation and associated costs relating to manufacturing support, logistics and quality assurance personnel, including stock-based compensation and excess and obsolescence provisions and purchase accounting adjustments. The decrease in gross margin in fiscal 2008 compared to fiscal 2007 was primarily due to lower gross margin from the cellular and handset products which commenced shipment in November 2006 as a result of the acquisition of the ICAP Business, and due to higher inventory excess and obsolescence provisions. The inventory excess and obsolescence provision increased by $27.4 million in fiscal 2008 compared to fiscal 2007 from $34.7 million in fiscal 2007 to $62.1 million in fiscal 2008, respectively. The increase in excess and obsolescence was due to the mix and quantities on hand compared to forecasted demand for such products on hand including communications and applications processor products and wireless products. The cellular and handset inventory that we were contractually obligated to purchase under a supply agreement with Intel were recorded at estimated fair value as required under purchase accounting. Although we have met the contractual obligations under the original supply agreement and transitioned certain products to our fabrication partners, we anticipate that we will continue to source certain legacy application processor cellular and handset inventory from Intel pursuant to the terms of an amendment to the supply agreement. We recorded such inventory at what we believe to be above-market cost, which will adversely impact our gross margin relative to periods where we primarily purchased inventory at the minimum committed level. The supply agreement with Intel required us to purchase inventory earlier than anticipated product shipments to our customers resulting in higher levels of inventory and associated carrying costs. As a result, the higher levels of inventory increase our risk of holding excess and obsolete inventory. Our gross margin may also fluctuate in future periods due to, among other things, changes in the mix of products sold, the timing of production ramps of new products, increased pricing pressures from our customers and competitors, particularly in the consumer product markets that we are targeting, charges for obsolete or potentially excess inventory, changes in the costs charged by our manufacturing and test subcontractors, the introduction of new products with lower margin and product warranty costs and changes in the amount of development revenue recognized.

Cost of Goods Sold

Cost of Goods Sold

Cost of goods sold consists primarily of the costs of manufacturing, assembly and test of integrated circuit devices and related overhead costs, product warranty costs, royalties and compensation and associated costs relating to manufacturing support, logistics and quality assurance personnel, including stock-based compensation costs, excess and obsolescence provisions and purchase accounting adjustments.  Gross margin is calculated as net revenue less cost of goods sold as a percentage of net revenue.  The increase in gross margin for the three months ended May 3, 2008 compared to the three months ended April 28, 2007 was primarily due to increased volume and reduced costs for cellular and handset products resulting from the transition of manufacturing to our fabrication partners.  In addition, gross margins for printer ASIC and wireless products improved as we experienced lower material and manufacturing costs due to volume efficiencies and yield improvements.  Our gross margins may fluctuate in future periods due to, among other things, changes in the mix of products sold, the timing of production ramps of new products, increased pricing pressures from our customers and competitors, particularly in the consumer product markets that we are targeting, charges for obsolete or potentially excess inventory, changes in the costs charged by our manufacturing and test subcontractors, the introduction of new products with lower margins, product warranty costs and changes in the amount of development revenue recognized.

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Cost of Goods Sold

        Cost of goods sold consists primarily of the costs of manufacturing, assembly and test of integrated circuit devices and related overhead costs, product warranty costs, royalties and compensation and associated costs relating to manufacturing support, logistics and quality assurance personnel, including stock-based compensation. Gross margin is calculated as net revenue less cost of goods sold as a percentage of net revenue. The decrease in gross margin in fiscal 2007 compared to fiscal 2006 was primarily due to higher inventory excess and obsolescence provision of $20.6 million, increased stock-based compensation costs of $4.7 million, product costs associated with inventory that was acquired from our acquisitions, higher overhead costs of $12.1 million and higher royalties of $7.7 million. The increase in excess and obsolescence provision was due to the mix and quantities of product on hand compared to forecasted demand for such products on hand. The increase in stock-based compensation expense was a result of our adoption of SFAS 123R. The increase in overhead costs in fiscal 2007 as compared to fiscal 2006 was due to the additional personnel, facility and related operating costs from our acquisitions during fiscal 2007. The increase in royalties in fiscal 2007 as compared to fiscal 2006 was due to higher sales of products that integrated licensed technology. Our gross margins may fluctuate in future periods due to, among other things, changes in the mix of products sold, the timing of production ramps of new products, increased pricing pressures from our customers and competitors particularly in the consumer markets we

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are targeting, charges for obsolete or potentially excess inventory and changes in the costs charged by our manufacturing and test subcontractors.

Cost of Goods Sold

        Cost
of goods sold consists primarily of the costs of manufacturing, assembly and test of integrated circuit devices and related overhead costs, product warranty costs, royalties and
compensation and associated costs relating to manufacturing support, logistics and quality assurance personnel, including stock-based compensation. Gross margin is calculated as net revenue less cost
of goods sold as a percentage of net revenue. The decrease in gross margin in fiscal 2007 compared to fiscal 2006 was primarily due to higher inventory excess and obsolescence provision of
$20.6 million, increased stock-based compensation costs of $4.7 million, product costs associated with inventory that was acquired from our acquisitions, higher overhead costs of
$12.1 million and higher royalties of $7.7 million. The increase in excess and obsolescence provision was due to the mix and quantities of product on hand compared to forecasted demand
for such products on hand. The increase in stock-based compensation expense was a result of our adoption of SFAS 123R. The increase in overhead costs in fiscal 2007 as compared to fiscal 2006
was due to the additional personnel, facility and related operating costs from our acquisitions during fiscal 2007. The increase in royalties in fiscal 2007 as compared to fiscal 2006 was due to
higher sales of products that integrated licensed technology. Our gross margins may fluctuate in future periods due to, among other things, changes in the mix of products sold, the timing of
production ramps of new products, increased pricing pressures from our customers and competitors particularly in the consumer markets we

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are
targeting, charges for obsolete or potentially excess inventory and changes in the costs charged by our manufacturing and test subcontractors.

Cost of Goods Sold

Cost of goods sold consists primarily of the costs of manufacturing, assembly and test of integrated circuit devices and related overhead costs, product warranty costs, royalties and compensation and associated costs relating to manufacturing support, logistics and quality assurance personnel, including stock-based compensation costs. Gross margin is calculated as net revenue less cost of goods sold as a percentage of net revenue. The decrease in gross margin percentage for the three months ended April 28, 2007 compared to the three months ended April 29, 2006 was primarily due to lower gross margins for cellular and handset products which commenced shipping in November 2006 as a result of the acquisition of the communications and application processor business from Intel.  The cellular and handset inventory that were supplied under a supply agreement with Intel are recorded at estimated fair value as required under purchase accounting.  Our gross margins may fluctuate in future periods due to, among other things, changes in the mix of products sold, the timing of production ramps of new products, increased pricing pressures from our customers and competitors, particularly in the consumer product markets that we are targeting, charges for obsolete or potentially excess inventory, changes in the costs charged by our manufacturing and test subcontractors, the introduction of new products with lower margins, product warranty costs and changes in the amount of development revenue recognized.

Cost of Goods Sold

Cost of goods sold consists primarily of the costs of manufacturing, assembly and test of integrated circuit devices and related overhead costs, product warranty costs, royalties and compensation and associated costs relating to manufacturing support, logistics and quality assurance personnel, including stock-based compensation expenses. Gross margin is calculated as net revenue less cost of goods sold as a percentage of net revenue. The increase in gross margin in fiscal 2006 compared to fiscal 2005 was primarily due to manufacturing efficiencies and better yields from our foundries, product cost savings resulting from the benefits of favorable foundry pricing, and to a lesser extent, a product mix change, which included production ramps of our storage SOCs. Partially offsetting the increase in gross margins were higher product costs associated with inventory that was acquired as part of from the hard disk and tape drive controller business of QLogic, as well as increased royalties, warranty expense, inventory excess and obsolescence provisions and $2.3 million of stock-based compensation costs. The increase in royalties in fiscal 2006 as compared to fiscal 2005 was due to higher sales of products that integrated licensed technology. The increase in warranty expense was due to the increased volume of sales and extended warranties for certain customers. The increase in inventory excess and obsolescence provisions was due to an increase in mature products for which there was lower forecasted demand. The costs associated with contracted development work are included in research and development expense. Our gross margins may fluctuate in future periods due to, among other things, changes in the mix of products sold, the timing of production ramps of new products, increased pricing pressures from our customers and competitors particularly in the consumer markets we are targeting, charges for obsolete or potentially excess inventory, changes in the costs charged by our manufacturing and test subcontractors and changes in the amount of development revenue recognized.