Marvell Technology Group (MRVL)

Our supply agreement with Intel was entered into to secure a supply of wafers and products during a transition period while we arranged for our independent foundries and other contractors to begin fabrication, assembly and test for these products. We record the cellular and handset inventory that we are contractually obligated to purchase under the Intel supply agreement at estimated fair value as required under purchase accounting.  However, because of the long lead times necessary to transition the production of wafers and products to other foundries, we anticipate that in the future we will source cellular and handset inventory under the Intel supply agreement and that such purchases will in significant part be beyond our minimum committed levels under the agreement.  We will record such inventory at cost, which will adversely impact our gross margins relative to periods where we only purchased inventory at the minimum committed level.  If we cannot complete the transition of production of wafers and products in a timely manner and must continue to purchase inventory pursuant to the Intel supply agreement beyond our minimum committed level, our gross margins and results of operations will suffer.  Moreover, Intel is only obligated to supply specified quantities of product for a limited amount of time, no later than June 2008. Some of these products are at earlier stages in their new product introduction processes, where manufacturing yields are not yet consistent and changes to the design and processes may still have to be made. This can make the transition of the manufacture of these products to independent foundries and other contractors more complicated and expensive. If we do not successfully transition the production of the wafers and products to independent foundries and other contractors, we will be unable to meet customer demand for these products. This could result in a material decline in revenues, net income, and cash flow. Additionally, our customers could become dissatisfied with us and not continue to use our products if and when we were able to resume providing them with products or if the newly transitioned products would require extended customer re-qualification.

Our supply agreement with Intel was entered into to secure a supply of wafers and products during a transition period while we arranged for our independent foundries and other contractors to begin fabrication, assembly and test for these products. We record the cellular and handset inventory that we are contractually obligated to purchase under the Intel supply agreement at estimated fair value as required under purchase accounting.  However, because of the long lead times necessary to transition the production of wafers and products to other foundries, we anticipate that in the future we will source cellular and handset inventory under the Intel supply agreement and that such purchases will in significant part be beyond our minimum committed levels under the agreement.  We will record such inventory at cost, which will adversely impact our gross margins relative to periods where we only purchased inventory at the minimum committed level.  If we cannot complete the transition of production of wafers and products in a timely manner and must continue to purchase inventory pursuant to the Intel supply agreement beyond our minimum committed level, our gross margins and results of operations will suffer. Moreover, Intel is only obligated to supply specified quantities of product for a limited amount of time, no later than June 2008. Some of these products are at earlier stages in their new product introduction processes, where manufacturing yields are not yet consistent and changes to the design and processes may still have to be made. This can make the transition of the manufacture of these products to independent foundries and other contractors more complicated and expensive. If we do not successfully transition the production of the wafers and products to independent foundries and other contractors, we will be unable to meet customer demand for these products. This could result in a material decline in revenues, net income, and cash flow. Additionally, our customers could become dissatisfied with us and not continue to use our products if and when we were able to resume providing them with products or if the newly transitioned products would require extended customer re-qualification.