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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED JANUARY 27, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM N/A TO __________ .
COMMISSION FILE NUMBER 0-30877
MARVELL TECHNOLOGY GROUP LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
BERMUDA 77-0481679
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
4TH FLOOR, WINDSOR PLACE, 22 QUEEN STREET, P.O. BOX HM 1179, HAMILTON HM EX,
BERMUDA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(441) 296-3695
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $0.002 PAR VALUE PER SHARE
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Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to the Form 10-K. [ ]
As of April 20, 2001, the aggregate market value of the common stock held
by nonaffiliates of the registrant was $1,291,189,401 based upon the last
reported sale price of the registrant's common stock as reported by the Nasdaq
National Market System.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Definitive Proxy Statement to be filed with the
Securities and Exchange Commission in connection with the Company's 2001 Annual
General Meeting of Shareholders are incorporated by reference into Part III
hereof.
As of April 20, 2001, there were 115,413,881 shares of common stock
outstanding.
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TABLE OF CONTENTS
PAGE
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 27
Item 3. Legal Proceedings........................................... 27
Item 4. Submission of Matters to a Vote of Security Holders......... 28
PART II
Item
5..... Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 29
Item 6. Selected Consolidated Financial Data........................ 31
Item 7. Management's Discussion and Analysis of Financial Condition
and
Results of Operations....................................... 32
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 52
Item 8. Financial Statements and Supplementary Data................. 53
Item 9. Changes in and Disagreements with Accountants on Accounting
and
Financial Disclosure........................................ 76
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 76
Item 11. Executive Compensation...................................... 76
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 76
Item 13. Certain Relationships and Related Transactions.............. 76
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 76
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MARVELL TECHNOLOGY GROUP LTD.
PART I
ITEM 1. BUSINESS.
This report on Form 10-K contains forward-looking statements that involve
risks and uncertainties. Our actual results may differ significantly from the
results discussed in these forward-looking statements. Factors that may cause
such a difference include, but are not limited to, those discussed in
"Additional Factors that May Affect Future Results" beginning on page 38.
OVERVIEW
We design, develop and market integrated circuits utilizing proprietary
communications mixed-signal and digital signal processing technology for
communications-related markets. Our products provide the critical interface
between analog signals and the digital information used in computing and
communications systems and enable our customers to store and transmit digital
information reliably and at high speeds. We initially focused our core
technology on the storage market, where we provide high performance products to
such companies as Samsung, Seagate, Fujitsu, Toshiba and Hitachi, who as a group
accounted for 84% of our sales in fiscal 2001, 98% of our sales in fiscal 2000
and 99% of our sales in fiscal 1999. We then applied our technology to the high
speed, or broadband, communications market. In March 2000, we shipped and
generated revenue from our first products that are used in network access
equipment to provide the interface between communications systems and data
transmission media. In January 2001, we completed our acquisition of Galileo
Technology Ltd. Galileo develops high-performance communications internetworking
and switching products for the broadband communications market. We believe that
our core technology can be used to improve performance across a wide range of
communications applications. For example, we are actively developing products
for the 10 Gigabit Ethernet fiber-optic market, which provides data transfer
rates of 10,000 megabits per second, and for the wireless communications market.
All references to Galileo in this Form 10-K refer to Galileo Technology Ltd.,
our wholly-owned subsidiary. For the fiscal year ended January 31, 2001, we
generated $143.9 million in net revenue.
Marvell Technology Group Ltd. was incorporated in Bermuda in January 1995.
Our registered address in Bermuda is 4th Floor, Windsor Place, 22 Queen Street,
P.O. Box HM 1179, Hamilton HM EX, Bermuda, and our telephone number there is
(441) 296-3695. The address of our principal location in the United States is
Marvell Semiconductor, Inc., 645 Almanor Avenue, Sunnyvale, California 94085,
and our telephone number there is (408) 222-2500. We also have offices in
Israel, Singapore, Taiwan, Japan and the United Kingdom. During fiscal 2000, we
changed our fiscal year-end to the Saturday nearest January 31. In fiscal 1999,
our fiscal year ended on January 31. For presentation purposes, we refer to
January 31 as our fiscal year-end for all periods.
INDUSTRY BACKGROUND
Satisfying Bandwidth Demand
Businesses and consumers today are creating a rapidly growing demand for
broadband access to large volumes of information in multiple forms, including
voice, video and data. This demand is being driven by the introduction of new
data-intensive computing and communications applications, such as web-based
commerce, streaming audio and video, enterprise-wide information systems and
telecommuting. In addition, information is increasingly available via networks
through a variety of access devices, including personal computers, digital cable
set-top boxes used in conjunction with television sets, cable modems, handheld
computing devices known as personal digital assistants and wireless phones.
These applications and devices require increasingly higher data transfer rates
within computing systems and data storage devices and across computer networks,
the public telephone infrastructure and the Internet.
Achieving high integrity data recovery and transmission becomes
increasingly difficult at higher data transfer rates. Data transfer rates, often
referred to as bandwidth, are measured in terms of megabits per
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second transmitted over a given media. In addition, communications systems must
transfer data reliably at very high speeds using a wide range of physical
transmission media, including magnetic and optical storage disks, twisted pair
copper wire, coaxial cable, fiber-optic cable and open air.
A critical element of these communication systems is a physical layer
device, which performs the important interface functions between the
communications system and the transmission media. Typically, data is transferred
over the transmission media using analog signals; however, within the
communications systems, data is processed digitally. The physical layer device
converts digital computer information into analog signals before transmitting
them over the physical media. The physical layer device also receives analog
signals from the transmission media and converts them to digital data that
computers can understand and manipulate. Physical layer devices often determine
the overall performance of the communications system. In order to achieve high
integrity in data transmission and recovery at high transfer rates, physical
layer devices must overcome a number of factors that can impair signal quality
and introduce errors, including substandard media, noise, signal level
degradation over distance, interference from adjacent lines and signal echo. In
many computing systems and networks, bandwidth bottlenecks arise where the media
and physical layer devices are incapable of supporting the required data
transfer rates. As transmission speeds approach the fundamental limits of a
particular transmission media, physical layer devices must increasingly employ
sophisticated signal processing algorithms and techniques to accurately recover
the transmitted data. A digital signal processing algorithm involves
mathematical manipulation of digital data.
To meet the demands of increasingly higher data transfer rates within
computing systems and across computer networks, the data must be more reliably
and intelligently transmitted across the system. This is resulting in a
transition from repeater to switch connections. Switches route data through the
communications system with bandwidth dedicated to each end-user and have the
potential to intelligently manage the data transmission. Unlike a switch, a
repeater, which also transmits data across the system, provides less
intelligence and shares the bandwidth among end-users resulting in less reliable
and predictable transmission. Additionally, there is an increased demand on
today's switches as previously separate voice communications systems, video
communications systems and data communications systems are converged into single
systems that handle voice, video and data seamlessly.
Also, as the rate and variety of data transmission increases, the system
must handle more data and employ more sophisticated functions. This puts an
increasing strain on the host central processing unit, or CPU, within the system
and, as a result, makes the subsystems that support the CPU more critical. The
system controller supports the CPU by managing the movement of data to the
various data processing functions to free up the host CPU so that it can
concentrate its resources on other more processor intensive functions while the
data movement is taking place.
High performance communications-related end markets in which the
availability of bandwidth and the management of data present critical problems
include the storage and broadband communications markets.
Storage
A substantial portion of all business and personal information is recorded
in analog form on magnetic disk drives in data servers, workstations, personal
computers and consumer entertainment devices. As end-user data requirements
increase, disk drive suppliers must consistently offer drives with faster data
transfer rates and higher capacities. Disk capacity is measured by areal
density, which is the amount of data stored on one square inch of disk space.
Current high performance disk drive systems offer data transfer rates of
approximately 550 to 700 megabits per second and capacities of up to 100
gigabytes. In comparison, high performance disk drive systems in 1998 offered
data transfer rates of approximately 200 to 250 megabits per second and
capacities of up to 50 gigabytes.
A critical component in every disk drive is the read channel. The read
channel is a physical layer device that transmits and receives the analog data
that is stored on the magnetic disk and converts it to the digital data required
for use in computing systems. The read channel plays a critical role in enabling
the disk drive to achieve higher data transfer rates and areal densities. Often,
the read channel can become the limiting bottleneck for the entire disk drive
system because higher data transfer rates complicate recovery of the data
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stored on the disk. As data tracks are packed more closely together to achieve
greater areal density, problems arise from interference between adjacent data
tracks. These communication challenges require increasingly sophisticated read
channel designs. In addition, as disk drive manufacturers seek to reduce costs,
they are increasingly demanding that functions traditionally performed by
stand-alone integrated circuits be combined with the read channel into a single
integrated circuit, which is referred to as a system-on-chip.
Broadband Communications
In recent years there has been a rapid increase of data transmitted across
and within computer networks, the public telephone infrastructure and the
Internet. Communications infrastructures are constantly evolving to support this
increase in data transmission demand. In computer networks that span relatively
large geographical areas, known as wide area networks, or WANs, this increase in
data transmission demand has driven the deployment of high capacity fiber-optic
transmission systems and new broadband access technologies, such as cable modems
and digital subscriber lines. In computer networks that span relatively small
geographical areas, known as local area networks, or LANs, this increase in data
transmission demand has resulted in a transition from the 10 megabit per second
Ethernet technology to the 100 megabit per second Fast Ethernet technology. In
addition, several manufacturers of physical layer devices have publicly
announced that they are developing products based on new standards to support
the increasing data transmission demand. These new standards are Gigabit
Ethernet, which provides data transfer rates of 1,000 megabits per second, and
10 Gigabit Ethernet, which provides data transfer rates of 10,000 megabits per
second.
In the broadband communications market, physical layer devices, switches
and system controllers are critical to the deployment of new, higher data rate
transmission technologies. Gigabit data transmission rates present significant
data recovery and management challenges. Many businesses have installed computer
networks using copper twisted pair wires. As a result, we believe that
businesses have made a significant investment installing copper twisted pair
wires to support their LANs. A number of problems, such as interference from
adjacent lines and signal echo, arise when transmitting data at gigabit rates on
the existing copper twisted pair wire. The most common form of copper twisted
pair wire installed was originally designed to support 100 megabit per second
data rates. As a result, the deployment of Gigabit Ethernet requires either the
costly and time-consuming upgrading of this wiring or the deployment of new
physical layer devices that enable gigabit transmission rates on the existing
infrastructure.
Today's communication networks are being re-architected to efficiently
support voice, video and data. Instead of equipping and managing disparate
systems -- one for voice, one for video, one for data -- the convergence of
these systems creates a single, more efficient system. In the rush to provide
converged networking advantages to their customers, today's broadband
communications companies face significant issues, including the fact that voice
networks are inefficient for transferring data and data-optimized networks were
not designed to carry voice or video. To efficiently support voice, video and
data, each point in the network must be re-architected to allow these different
types of data to move through a single converged network with reliability and
quality.
The Opportunity For New Integrated Circuit Solutions
The rapidly growing demand for high speed broadband communications products
that enable the transmission of large volumes of data is creating the need for a
new generation of integrated circuit solutions.
- Physical layer devices capable of supporting increasingly higher data
transmission rates over existing media infrastructures require
sophisticated mixed-signal and digital signal processing techniques.
Mixed-signal technologies employ both analog and digital circuitry in a
single integrated circuit.
- Switches that have the intelligence to process and provide routing
management functions and carry information in multiple forms including
voice, video and data.
- Systems controllers that more reliably manage the data transmission
functions.
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To keep the power consumption of these new solutions at acceptable levels,
more efficient yet powerful signal processing algorithms, implemented in
silicon, are required. These new generation devices must also satisfy market
demands associated with large production volumes, competitive pricing, high
reliability and decreased size. Also to meet these demands, we expect the trend
to continue towards integrating into one chip various functions which are
currently implemented in discrete integrated circuits. Integration reduces the
overall number of components in a system, thereby reducing overall system cost.
OUR SOLUTION
Our integrated circuits incorporate precise mixed-signal technologies and
complex signal processing algorithms. Our products allow our customers to store
and move digital data reliably at high data transfer rates while using existing
media infrastructures. Our products are also used for transmitting and
recovering digitally converted analog signals to and from various types of
broadband communications media.
Our products target high volume markets where some of the most critical
success factors are performance, features, power consumption, quality and cost.
We initially applied our mixed-signal and digital signal processing technology
to the storage market, where we provide read channel devices and preamplifiers
to meet the high data transfer rate, high areal density and data integrity
requirements of our customers. A preamplifier amplifies the low level electrical
signal transmitted to and from the recording heads in a disk drive device. We
then applied our core technology to developing high performance physical layer
devices for the broadband communications market. We introduced the first member
of our communications product family, a physical layer device for 10 and 100
megabit per second Ethernet and Fast Ethernet applications, in the fourth
quarter of calendar year 1999. Our Fast Ethernet physical layer devices are
manufactured in 0.25- and 0.22-micron complementary metal oxide semiconductor,
or CMOS, manufacturing process and provide long distance signal transmission
capability and low power consumption. We introduced our first generation of
Gigabit Ethernet physical layer devices for use with existing copper twisted
pair wiring infrastructures in May 2000. Our Gigabit Ethernet physical layer
devices are manufactured in 0.18- and 0.15-micron CMOS manufacturing processes
and address the reduced signal quality of gigabit data rate signals on existing
copper twisted pair wiring infrastructures.
Based on our operating management and financial reporting structure, we
have determined that we have one reportable business segment: the design,
development and sale of integrated circuits. Please see the financial
information regarding this reportable business segment set forth in Item 6 of
this Form 10-K and the information regarding our net revenues and long-lived
assets based on geographic regions included in Note 11 to our Consolidated
Financial Statements set forth in Item 8 of this Form 10-K.
In January 2001, we completed our acquisition of Galileo Technology Ltd.
which designs integrated circuits that address the important subsystems in the
broadband communications market. Galileo's system controllers, WAN communication
controllers, switch Ethernet controllers and processors, and switch Packet-
Over-SONET, or POS, and asynchronous transfer mode, or ATM, processors provide
some of the key functionality of communications systems. Galileo also designs
evaluation boards and develops basic firmware and software to provide
applications support to its customers. Galileo is considered a pioneer in
merchant switched Ethernet controllers, introducing its first Ethernet
controller in 1996. The acquisition of Galileo brought together our physical
layer technology and expertise with Galileo's system-level technology and
expertise, which we believe allows us to provide our customers with complete
solutions that enable them to introduce their products to the market more
quickly than they can with other solutions.
Key features of our technology solutions include:
- Mixed-Signal Broadband Analog Front-End Technology. One of the most
critical components of many communications-related mixed-signal
integrated circuits is the analog front-end. The analog front-end is the
analog-to-digital and digital-to-analog converter that serves as the
interface between the digital signal processor and the physical
transmission media. We have developed high precision analog front-ends
that are implemented in CMOS manufacturing processes. We are able to
design these broadband analog front-ends due to a number of innovations,
including proprietary self-calibration techniques that compensate for the
inherent variations of these processes. Our analog
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circuits are designed to be highly reusable across many of our products
and easily scalable to new CMOS processes as they emerge.
- Custom Digital Signal Processors. We have designed high performance, low
power usage digital signal processors for broadband communications
applications. These processors are customized to execute our suite of
advanced digital signal processing algorithms in real time at high
speeds. For example, our latest generation read channel device performs
several hundred billion operations per second.
- Proprietary Digital Signal Processing Algorithms. Our advanced digital
signal processing algorithms enable data transmission at high speeds
across a wide range of physical transmission media with low data error
rates. These digital signal processing algorithms improve performance in
the presence of media imperfections such as substandard media, noise,
signal level degradation over distance, interference from adjacent lines
and signal echo. We have developed a broad suite of broadband
communications algorithms targeted at both storage and broadband
communications applications.
- Design For Advanced CMOS Manufacturing Processes. In addition to CMOS,
there are several modern processes for manufacturing integrated circuits
including Bipolar CMOS, or BiCMOS, silicon germanium and gallium
arsenide. While it is significantly more difficult to design high
performance analog integrated circuits in CMOS, CMOS provides multiple
benefits compared to many other processes, including significantly lower
manufacturing cost, more predictable migration to smaller process
geometries, more cost effective integration of additional functions in a
single integrated circuit and greater worldwide foundry capacity. We have
successfully combined advanced analog signal processing blocks with high
speed digital signal processors in 0.25-, 0.18- and 0.15-micron CMOS
manufacturing processes. Based on conversations with our customers, we
believe that we have achieved a level of circuit speed performance in
CMOS process technologies that has typically only been achieved with more
expensive special fabrication techniques, such as BiCMOS.
- Reusable Building Blocks For Integrated System-On-Chip Design. We have
developed a proprietary set of manufacturing process design rules that we
believe are scalable over several generations of manufacturing process
geometries. We have also collected a significant library of circuit
building blocks that can be reused with modification in successive
generations of products. These design methodologies allow us to shorten
time-to-market for new products and take advantage of the latest CMOS
manufacturing processes.
- Internet Protocol Knowledge. Internet Protocol, or IP, technologies have
been widely selected as the core technologies for converged networks.
Galileo has developed intimate knowledge in IP technologies. This has
allowed us to develop integrated circuits that exemplify the
implementation of a state-of-the-art set of products that uses IP
technologies to deliver a comprehensive solution for networks where it is
critical to effectively carry multiple types of media, to guarantee
qualify of service, to bill for services and establish service level
agreements, to provide redundancy for high reliability and to effectively
bridge to other technologies like POS and ATM.
Key benefits for our customers are:
- High Performance. In the storage market, our products achieve high data
transfer rates and areal densities. In the broadband communications
market, our products achieve the required low error rates when used with
lower quality media and attain superior signal transmission distance when
used with standard media. Our broadband communications products are
designed to enable businesses to upgrade their networks without the
expense associated with upgrading to new wiring.
- Low Power. Our custom digital signal processors use fewer transistors to
perform data transfer functions than the standard designs used by some of
our competitors, thereby reducing overall system power usage. We also
implement our designs in advanced CMOS processes, which further reduces
power requirements. These designs allow our customers to eliminate costly
heat reduction components in their products.
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- Cost Effective. We are able to lower our manufacturing costs by using
advanced manufacturing processes and our custom digital signal processing
technology. These processes and technologies allow us to use a smaller
silicon chip size, which results in more integrated circuits per wafer.
In addition, our products generate less heat, which allow us to use less
expensive packaging technologies and achieve lower cost system
implementations than for products that generate more heat. These
manufacturing advantages reduce the cost of next-generation
communications equipment, enabling our customers to offer their products
at competitive prices.
- Higher Integration Capability. The combination of our use of CMOS
manufacturing processes, small silicon chip size and low power
requirements allow us to increase the number of functions in a single
integrated circuit. These capabilities position us to integrate elements
of our customers' designs, currently implemented in discrete integrated
circuits, into our products. Integration reduces the overall number of
components in a system, thereby reducing overall system cost.
- Accelerated Time-To-Market. We help our customers rapidly introduce
higher performance, lower cost products. Many features of our integrated
circuits are software-configurable, allowing our customers to customize
circuit operation for their specific applications. In addition, although
our customers have traditionally internally developed the key
application-specific integrated circuits, or ASICs, for their network
systems or used programmable logic, such as field programmable
gate-arrays, they have recently begun to outsource this product. We can
provide these products at a lower cost, with higher performance and more
rapidly than our customers can develop these products internally because
of the larger size of our potential market and the resources we dedicate
to such functions. Additionally, many of our new products are supported
by evaluation boards and reference designs to accelerate our customer's
development activities. Evaluation boards facilitate the adoption of our
semiconductor devices by closely resembling actual end-products or
subsystems within them.
OUR STRATEGY
Our objective is to be a leading provider of extreme broadband system-level
communications integrated circuit solutions. Key elements of this strategy
include the following:
Expand Market Position By Developing New Signal Processing Technologies For
Broadband Communications-Related Applications
We have built expertise in the core areas of technology that are relevant
for broadband communications, including mixed-signal circuit design
methodologies, broadband signal processing algorithms, custom digital signal
processors and system-level expertise. We intend to continue to invest
considerable resources in developing new and enhanced algorithms and improved
mixed-signal and digital signal processing technologies. We expect that our
investment will allow us to develop products that can achieve data transmission
speeds approaching the fundamental limits of particular transmission media
infrastructures. Our core signal processing technologies can be applied to a
wide range of broadband communications-related markets, including storage, data
networking and wireless networking.
Leverage Technology In The Broadband Communications Market
We initially applied our mixed-signal and digital signal processing
technology expertise to the communications market through the introduction of
physical layer devices using the Fast Ethernet networking protocol. These
physical layer devices are manufactured in 0.25- and 0.22-micron CMOS
manufacturing processes and provide long distance signal transmission capability
and low power consumption. We then applied our technology to developing Gigabit
Ethernet physical layer devices. Additionally, we have begun to integrate our
physical layer devices with functions previously provided by other integrated
circuits, such as the media access controller. The media access controller is
the component that controls access by different devices to the physical media to
ensure that signals sent from different devices over the same channel do not
collide.
With our acquisition of Galileo completed, we are able to offer our
customers both physical transmission solutions and system architecture
expertise. We plan to leverage our acquired strength in designing switching
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and internetworking products with one of our existing core strengths - designing
products which enable the movement of data at high transfer rates. This effort
will allow us to integrate multiple product functions to address the demands of
today's broadband communications market for single chips that decrease the cost
of and increase the performance of our customers' communications systems.
Additionally, we plan to leverage Galileo's technology to deliver products to
one of the most promising segments of the communications market:
converged-networks that carry voice, video, and data across local area networks
and wide area networks.
Extend Leadership Position In The Storage Market
The storage market presents a large volume opportunity for our broadband
mixed-signal and digital signal processing technologies. We believe our
technology effectively addresses the increasing data access rates and higher
data integrity and reliability requirements of the storage markets. We have
achieved significant market share in the high performance and portable computing
segments of the storage market. These segments of the storage market demand the
highest performance read channel products.
We intend to extend our leadership position in the high performance and
portable computing market segments by continuing to develop and introduce
products enabling higher data transfer rates and areal densities. In addition,
we intend to extend our market position in the general purpose personal computer
segment.
We believe that, for us, the storage market is one of the technology and
logistics drivers for the rapid and cost-effective development of our
communications products and, therefore, it is important that we continue to
develop new high performance products and product enhancements for the storage
market. Applying our mixed-signal and digital signal processing technology to
develop products for the high performance storage markets, and testing and
improving the products for this market adds to our library of proprietary
technology and allows us to more rapidly apply this technology to develop
products in the communications market. In addition, the demanding logistics of
product delivery to the storage market has required us to establish systems that
enable efficient and timely delivery systems to support the communications
market.
Strengthen And Expand Our Relationships With Current And Potential Customers
We intend to continue to strengthen and expand our relationships with
customers by identifying our customers' evolving needs and designing new
products and product functions to meet these needs. For example, while we design
products that can be used by multiple customers, we often customize our products
to incorporate our customers' specific requirements. As the markets we address
become increasingly complex and competitive, we anticipate that many of our
customers will increasingly wish to combine elements of their designs with our
own designs. We intend to jointly develop highly integrated products with our
customers to meet their cost and performance requirements and to strengthen
relationships with them.
Capitalize On Widely Available CMOS Manufacturing Processes And Fabless
Operating Model
We intend to continue to use widely available CMOS processes to manufacture
our advanced mixed-signal and digital signal processing products. We believe
this will better enable us to reliably manufacture our products in volume,
thereby decreasing our time-to-market and costs, while also facilitating the
development of highly integrated products. We have recently developed our own
embedded memory technology for complex system-on-chip designs. We are also in
the process of developing products that integrate our core mixed-signal and
digital signal processors with other internal solutions, and we are developing
and are in production with various products integrating our customers' silicon
components and on-chip memory with our own technology.
We are a fabless integrated circuit manufacturer in the sense that we rely
on third parties to manufacture, assemble and test our products. Our fabless
model allows us to focus our resources on the development of proprietary and
innovative mixed-signal and digital signal processing designs, while reducing
capital and operating infrastructure requirements.
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Expand Our System-Level Approach To Design
We intend to expand our use of a system-level approach to development of
our products to improve the time-to-market and production of our products, and
in turn to assist our customers to more rapidly introduce their products to the
market. Our system-level approach considers the various components in a system,
to anticipate and evaluate effectively the various systems issues and tradeoffs
that our customers will face when designing our products into their equipment.
Our architects, designers, technical marketing engineers and applications
engineers have broad knowledge of communications system architectures and
advanced microprocessors, allowing us to take a system-level approach in the
design of our products. This helps us to partition our devices properly and to
attain appropriate levels of integration. A system-level approach also results
in modular offerings: a device may operate on a stand-alone basis as a complete
basic system or various devices may be interconnected to form a more complex
system.
In designing a product, we also conduct systems-level simulations in which
the software model of a new device interacts with models of the devices with
which it will interface in a typical system in order to test system-level
operability. These simulations are often conducted with key customers that
provide extensive feedback to our design team. As a result, we have successfully
designed products highly functional on first silicon. In many cases the products
are also production worthy.
MARKETS
We target communications-related markets and applications that require
integrated circuit devices for high speed data transmission. We currently offer
solutions for two major markets: storage and broadband communications.
Storage Market
Demand for storage is increasing rapidly due to the introduction of new
data-intensive computing and communications applications, such as web-based
commerce, streaming audio and video, enterprise-wide information systems, and
telecommuting. We provide solutions tailored to the specific needs of the high
performance, portable and general purpose personal computer segments of this
market.
High Performance. The proliferation of new technologies such as redundant
array of independent drives and network-based storage systems is resulting in
increased usage of high performance storage devices. High performance computing
applications require systems that are capable of storing and retrieving large
amounts of data at high rates. As a result, manufacturers of storage devices for
the high performance segment place primary importance on disk drive performance,
reliability and capacity and are less concerned with the size, power consumption
and absolute cost. To accommodate these requirements, we provide integrated
circuits that enable reliable storage devices with high data transfer rates and
high capacity that are essential for complex, large-scale processing
environments.
Portable. Manufacturers of storage devices for the portable segment are
primarily concerned with power consumption, heat dissipation, cost and areal
density. Our product family targeted at this market segment incorporates
advanced digital signal processing technologies. To meet the requirements of
this segment we provide very low power consumption integrated circuits that can
accommodate high data transfer rates and enable very high areal density disk
drives.
General Purpose. Personal computer users have become increasingly price
sensitive. As a result, disk drive manufacturers focused on this segment require
integrated circuit components that facilitate design for high volume, low cost
manufacturing. Our CMOS-based design is well suited to high volume, low cost
manufacturing, scalable performance and integration. Due to our ability to
deliver high data transfer rates while meeting the cost requirements of the
general purpose personal computer segment, we offer manufacturers of general
purpose personal computer storage products a migration path for building the
higher performance drives of the future. In addition, we expect that emerging
consumer entertainment devices, such as digital camera devices, digital video
recorders and digital audio entertainment centers, will increasingly use storage
systems.
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Broadband Communications Market
As businesses and consumers seek faster access to increasing amounts of
information through local area networks, or LANs, metropolitan area networks, or
MANs, and wide area networks, or WANs, such as the Internet, these networks are
constrained in their ability to process and transmit information quickly. As a
result, the high speed networking equipment market is undergoing a rapid
transition from first generation Ethernet technologies operating at 10 megabits
per second to newer technologies, including Fast Ethernet, Gigabit Ethernet and
10 Gigabit Ethernet. A majority of the LAN equipment sold today is based on the
Fast Ethernet standard. As lower cost, lower power consumption Gigabit Ethernet
physical layer devices become available, we believe that Gigabit Ethernet will
emerge as an important local, metropolitan and wide area network communications
technology.
In addition to the transition to the Gigabit Ethernet standard, the high
speed networking equipment market is being re-engineered to support voice, video
and data seamlessly with converged communications equipment. As the market
transitions to converged communications equipment, we believe there will be an
increased demand for advanced integrated circuits that allow voice, video and
data to move through a single converged network with unprecedented reliability
and quality.
PRODUCTS
We design, develop and market integrated circuits using proprietary
communications mixed-signal processing, or CMSP, and digital signal processing
technologies for communications-related markets. We also develop
high-performance communications internetworking and switching products for the
broadband communications market.
Storage Products
Read Channel. The read channel is an integrated circuit providing the
interface between the analog signals from magnetic storage media and the digital
signals that computers can understand and manipulate. Our read channel products
allow our customers to achieve fast data transfer rates, high areal densities
and low power dissipation. Our read channels are designed in CMOS manufacturing
processes and use customized digital signal processors and broadband analog
front-ends. We introduced our first generation of read channels in 1997 and have
introduced four subsequent generations of signal processing technology
enhancements since then. We have migrated our manufacturing process technology
from 0.5- to 0.18-micron CMOS and our product speed from 240 megabits to 1.2
gigabits per second. Our read channel integrated circuits target specific
feature and performance requirements of high performance, portable and general
purpose personal computer customers. Beginning with the 88C4000 product family,
we implemented a strategy to consolidate the signal processing algorithms
required by each of our different market segments into a single integrated
circuit design. This strategy provides cost savings and reduced product line
complexity.
In an effort to enhance performance and lower cost, beginning with the
88I4310 in the third quarter of 2000, we began producing integrated products
that incorporate the read channel, the disk drive controller and embedded memory
functions in one integrated circuit, referred to as a system-on-chip, or SOC.
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12
Our current read channel products are shown in the table below.
READ CMOS INTRODUCTION
CHANNEL DESCRIPTION PERFORMANCE PROCESS DATE*
- ------- ----------------------------------------- ------------ ------- ------------
88C4200 Third generation read channel for high 550Mbits/sec 0.25mm 1st Qtr 1999
performance and general purpose personal
computer storage systems.
88C4220 Derivative of the 88C4200 for lower speed 380Mbits/sec 0.25mm 1st Qtr 1999
but higher user bit density portable
storage systems.
88C4300 Third generation read channel for future 550Mbits/sec 0.25mm 1st Qtr 2000
portable and high-end general purpose
personal computer applications.
88C5200 Fourth generation read channel for use in 750Mbits/sec 0.18mm 1st Qtr 2000
high performance storage systems.
88C4320 Derivative of the 88C4300 for lower speed 320Mbits/sec 0.25mm 2nd Qtr 2000
but higher user bit density portable
storage systems.
88I4300 Highly integrated system-on-chip which 400Mbits/sec 0.25mm 3rd Qtr 2000
incorporates a 88C4300 read channel with
a hard disk controller.
88I4310 Highly integrated system-on-chip which 400Mbits/sec 0.25mm 3rd Qtr 2000
incorporates a 88C4300 read channel with
a hard disk controller and embedded
memory.
88C5500 Fifth generation read channel for use in 1.2Gbits/sec 0.18mm 4th Qtr 2000
future high performance storage systems.
88I8010 Integrated device which incorporates a N/A 0.18mm 4th Qtr 2000
hard disk controller and embedded memory.
88I5220 Highly integrated system-on-chip which 750Mbits/sec 0.18mm 4th Qtr 2000
incorporates a 88C5200 read channel with
a hard disk controller, and two
microprocessors, each with independently
coupled memory.
88C5520 Derivative of the 88C5500 for lower speed 400Mbits/sec 0.18mm 1st Qtr 2001
but higher user bit density portable
storage systems.
- ---------------
* Introduction date refers to the calendar quarter in which product samples were
initially made available to a customer for evaluation purposes. These products
may not be available in commercial volumes for one or more quarters following
sample introduction.
Preamplifier. A preamplifier amplifies the low level electrical signal
transmitted to and from the recording heads in a disk drive device.
Preamplifiers operate in two basic modes: read and write. In read mode,
preamplifiers provide initial amplification of the high bandwidth signal from
the read head. In write mode, the preamplifier provides the write head with the
high frequency switched current required for writing on the magnetic media. We
provide the only commercially available preamplifiers manufactured in 0.25- and
0.5-micron CMOS processes. Our CMOS-based preamplifier products provide high
performance at a lower manufacturing cost than standard BiCMOS-based products.
We introduced our first preamplifier product in the third quarter of 1998 and
have introduced two subsequent generations of signal processing technology
enhancements since then. We have also introduced derivative products targeted at
a range of applications for each of these product families.
We introduced our first preamplifier with our proprietary 1st generation
differential architecture in the third quarter of 2000. The differential
architecture enables the preamplifier products to be insensitive to noise in the
environment.
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Our current preamplifier products are shown in the table below.
CMOS INTRODUCTION
PREAMPLIFIERS DESCRIPTION PERFORMANCE PROCESS DATE*
- ------------- ------------------------------------------- ------------ ------- ------------
81G3004 4-channel derivative of the 81G3018 design 300Mbits/sec 0.5mm 3rd Qtr 1998
for two-disk storage platforms.
81G3018 8-channel high gain-bandwidth preamplifier. 300Mbits/sec 0.5mm 4th Qtr 1998
81G3002 2-channel derivative of the 81G3018. 300Mbits/sec 0.5mm 2nd Qtr 1999
81G4008 8-channel second generation high 500Mbits/sec 0.5mm 2nd Qtr 1999
gain-bandwidth preamplifier.
81G4014 4-channel derivative of the 81G4008 for 500Mbits/sec 0.5mm 4th Qtr 1999
two-disk storage platforms.
81G4002 2-channel derivative of the 81G4008. 500Mbits/sec 0.5mm 1st Qtr 2000
81G4052 2-channel derivative of the 81G4054. 500Mbits/sec 0.5mm 3rd Qtr 2000
81G4054 4-channel derivative of the 81G4014. 500Mbits/sec 0.5mm 3rd Qtr 2000
81G5004/14 4-channel differential preamplifier for 750Mbits/sec 0.25mm 3rd Qtr 2000
mainstream desktop applications.
81G5104/14 4-channel differential preamplifier for 1Gbit/sec 0.25mm 1st Qtr 2001
high-performance desktop applications.
- ---------------
* Introduction date refers to the calendar quarter in which product samples were
initially made available to a customer for evaluation purposes. These products
may not be available in commercial volumes for one or more quarters following
sample introduction.
Communications Products
We are applying our mixed-signal and digital signal processing technology
to a variety of broadband communications markets, including Fast Ethernet,
Gigabit Ethernet and 10 Gigabit Ethernet. Our integrated circuits provide the
core functionality required for building components of the communications
systems, including the Ethernet network interface cards, routers, repeaters,
hubs, switches and controllers.
Fast Ethernet Physical Layer Products. Our physical layer products for the
Fast Ethernet communications market are highly integrated devices. These devices
contain the active circuitry, or ports, needed for interfacing with five, six or
eight independent network connections and are typically used by our customers in
Fast Ethernet repeaters, hubs, switches and routers. We have designed our
products to enable reliable communication over long cable distances and lower
quality cable installations.
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Our current Fast Ethernet physical layer products are listed in the table
below.
FAST ETHERNET
PHYSICAL LAYER CMOS INTRODUCTION
PRODUCTS DESCRIPTION PERFORMANCE PROCESS DATE*
- -------------- ----------------------------------------- --------------- ------- ------------
88E3080 8-port digital signal processing based 10/100Mbits/sec 0.25mm 4th Qtr 1999
Fast Ethernet physical layer device for
use in workgroup and enterprise
repeaters, hubs, switches and routers.
88E3060 6-port digital signal processing based 10/100Mbits/sec 0.25mm 1st Qtr 2000
Fast Ethernet physical layer device for
use in general purpose personal computer
hubs and switches.
88E3061 6-port Fast Ethernet physical layer 10/100Mbits/sec 0.22mm 3rd Qtr 2000
device offering advanced features such as
auto-MDI/ MDIX and SMII revision 2.1.
88E3081 8-port Fast Ethernet physical layer 10/100Mbits/sec 0.22mm 3rd Qtr 2000
device offering advanced features such as
auto-MDI/ MDIX and SMII revision 2.1.
88E6050 Plug-and-play, DSP-based, fully 10/100Mbits/sec 0.25mm 3rd Qtr 2000
integrated 5-port 10/100BASE-T Ethernet
Switch for the small office/home office
(SOHO) market.
- ---------------
* Introduction date refers to the calendar quarter in which product samples were
initially made available to a customer for evaluation purposes. These products
may not be available in commercial volumes for one or more quarters following
sample introduction.
Gigabit Ethernet Physical Layer Products. In May 2000, we began early
customer sampling of our Gigabit Ethernet physical layer device for the
communications market. At that time, we were the first to publicly announce the
introduction of a Gigabit Ethernet physical layer device in a 0.18-micron CMOS
manufacturing process. We have subsequently introduced our dual- and quad-port
Alaska(TM) family of devices. Each product comes with an optional built in
Gigabit serializer/deserializer, or SERDES, functions. Our most recent product,
the Alaska(TM) quad Gigabit Ethernet transceiver provides flexibility in the
selection of copper or fiber-optic interfaces on a per port basis. The design
for these products incorporate sophisticated digital signal processing
algorithms and power management techniques to achieve low power dissipation.
Target applications include network interface cards, routers, repeaters, hubs
and next-generation switches. In January 2001, Intel announced the introduction
of a device integrating our Gigabit Ethernet physical layer device with an Intel
media access controller.
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Our current Gigabit Ethernet physical layer products are listed in the
table below.
GIGABIT ETHERNET
PHYSICAL LAYER CMOS INTRODUCTION
PRODUCTS DESCRIPTION PERFORMANCE PROCESS DATE*
- ---------------- ------------------------------- -------------------- ------- ------------
88E1000 Alaska(TM) Gigabit Ethernet 10/100/1000Mbits/sec 0.18mm 2nd Qtr 2000
over copper physical layer
device (PHY) featuring low
power dissipation of only 1.8
watts.
88E1000S Alaska(TM) Gigabit Ethernet 10/100/1000Mbits/sec 0.18mm 2nd Qtr 2000
over copper PHY device
featuring optional SERDES
serial interface.
88E1010 Alaska(TM) Gigabit Ethernet 10/100/1000Mbits/sec 0.18mm 2nd Qtr 2000
over copper PHY featuring low
power dissipation of only 1.8
watts, packaged in very small
form factor package with
physical dimensions of only 10
x 14 mm.
88E1010S Identical to the 88E1010 device 10/100/1000Mbits/sec 0.18mm 2nd Qtr 2000
featuring an optional SERDES
serial interface.
88E1020 Alaska(TM) II dual-port Gigabit 10/100/1000Mbits/sec 0.18mm 2nd Qtr 2000
Ethernet over copper PHY
featuring low power dissipation
of only 1.8 watts per port.
88E1020S Identical to the 88E1020 device 10/100/1000Mbits/sec 0.18mm 3rd Qtr 2000
featuring an optional SERDES
serial interface on each port.
88E1040/1/2 Alaska(TM) Quad-port Gigabit 10/100/1000Mbits/sec 0.15mm 4th Qtr 2000
Ethernet over copper PHY
featuring low power dissipation
of just over 1.0 watt per port.
88E1040S/1S/2S Identical to the 88E1040 device 10/100/1000Mbits/sec 0.15mm 1st Qtr 2001
featuring an optional SERDES
serial interface on each port.
88E1011 Alaska(TM) Gigabit Ethernet 10/100/1000Mbits/sec 0.15mm 1st Qtr 2001
over copper PHY optimized for
mobile computing market;
featuring low power dissipation
of just over 1.0 watts.
- ---------------
* Introduction date refers to the calendar quarter in which product samples were
initially made available to a customer for evaluation purposes. These products
may not be available in commercial volumes for one or more quarters following
sample introduction.
System Controllers. System controllers support the CPU by managing the
movement of data, to the various data processing functions, to free up the host
CPU so that it can concentrate its resources on more processor intensive
functions. Our highly integrated system controllers can be combined with the
leading embedded reduced instruction set computers, or RISC, microprocessors to
form complete CPU subsystems. Our system controllers contain all the key control
blocks needed to build high-performance 32-bit and 64-bit CPU subsystems,
including DRAM controllers, peripheral device controllers, direct memory access,
or DMA, engines, timers, peripheral component interconnect, or PCI, interfaces,
and interrupt controllers. Our system controllers support the leading
microprocessors -- MIPS, Intel i960, and PowerPC. Our system controllers provide
system designers with the ability to match their CPU performance to the targeted
overall system price/performance by simply changing CPUs. An additional
advantage to OEMs using our system controllers over internally developed
solutions is that new products are generally software-compatible with older
generations -- supporting fast development time by re-using software which might
otherwise need to be re-developed.
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The overall performance of a given system is often determined by how
quickly and efficiently data is moved from one place to another within a system.
For example, interface data is often moved from a PCI-bus peripheral to main
memory, followed by a CPU interrupt (to inform the CPU of the presence of new
data), and then by moving parts of the data from main memory to the CPU for
inspection and other operations. This example involves several data movements,
all of which are supported with our system controllers. Our system controllers
maximize the performance of this system example by providing powerful DMA
engines, which allow the CPU and peripherals to move data in and out of the main
memory at high speeds with minimal CPU involvement -- allowing the CPU to
concentrate its resources on other activities while this data movement is
happening. Additionally, our system controllers use a multi-bus architecture
internally, which allows multiple data movement operations to occur
simultaneously between devices controlled by the system controller.
The majority of design wins for our system controllers are in
communications applications. These applications include switches, routers
(LAN-WAN edge routers and enterprise routers) and various telecom applications.
Other markets in which we have a strong presence include intelligent PC add-in
cards, host applications including thin clients and digital set-top boxes, and
storage area networks. Galileo identified the PowerPC platform as a growing
market in 1998 and introduced its first system controllers that support it in
1999. These products have garnered multiple design wins amongst communications
and telecom systems suppliers.
Our current system controller products are shown in the table below.
SYSTEM PERFORMANCE/ CMOS INTRODUCTION
CONTROLLERS DESCRIPTION FREQUENCIES PROCESS DATE
- ----------- ---------------------------------------- ------------ ------- ------------
MIPS
GT-32011 Low cost system controller for 33 MHz 0.6mm 1994
R3041/51/71/81 processors.
GT-64012 Secondary cache controller for 64-bit 50 MHz 0.5mm 1994
MIPS-based CPUs.
GT-64010A PCI system controller for 64-bit 50 MHz 0.5mm 1995
MIPS-based CPUs.
GT-64120 Advanced PCI system controller for 76 MHz 0.35mm 1997
64-bit MIPS-based CPUs.
GT-64111 PCI system controller for 64-bit 66 MHz 0.35mm 1998
MIPS-based (32-bits SysAD) CPUs.
GT-64115 PCI system controller for 64-bit 75 MHz 0.35mm 2nd Qtr 1999
MIPS-based (32-bits SysAD) CPUs.
GT-64120A Advance PCI system controller for 64-bit 100 MHz 0.25mm 3rd Qtr 1999
MIPS-based CPUs.
GT-64121A Advance PCI system controller for 64-bit 83 MHz 0.25mm 3rd Qtr 1999
MIPS-based CPUs.
GT-64240 High performance MIPS-based system 100 MHz 0.18mm 4th Qtr 2000
controller for communication
applications.
POWERPC
GT-64130 Advanced PCI system controller for 75 MHz 0.35mm 1st Qtr 1999
64-bit and MPC860 PowerPC-based CPUs.
GT-64131 Advanced PCI system controller for 76 MHz 0.35mm 1st Qtr 1999
64-bit and MPC860 PowerPC-based CPUs.
GT-64260 High performance PowerPC system 100 MHz 0.18mm 4th Qtr 2000
controller for communication
application.
I1960
GT-32090 Low cost system controller for i960Jx 33 MHz 0.6mm 1995
processor-based systems.
WAN Communication Controllers. The strong technical foundation established
for the creation of the system controller products has been used to create our
line of WAN communications controllers. Our WAN
14
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communications controllers integrate all the key building blocks necessary to
provide access from the LAN to the WAN, essentially creating a router subsystem
when coupled with a RISC microprocessor. Galileo introduced in 1997 a remote
access controller co-defined with Intel, a Galileo customer for this product.
This product was augmented in 1998 to provide customers with additional CPU
choices including MIPS, PowerPC, and Motorola's Coldfire, in addition to Intel's
i960 and i486. The WAN technologies developed for this product contributed the
balance of foundation technologies necessary to create the new Horizon line of
powerful WAN communications controllers. The Horizon family consists of products
that integrate most of the system blocks needed to implement converged
voice/data routers. Our WAN communications controllers span from the value
segment GT-96010A, used today in production SOHO routers, to our recently
introduced high-performance Horizon family. In general, these products enable
data routing between Ethernet and various WAN technologies, such as ISDN, T1/E1,
T3/E3, Frame Relay and xDSL technologies.
Our current WAN communication controllers are shown in the table below.
COMMUNICATION PERFORMANCE/ CMOS INTRODUCTION
CONTROLLERS DESCRIPTION FREQUENCIES PROCESS DATE
- ------------- ---------------------------------------------- ------------ ------- ------------
GT-96010A Remote Access Coprocessor. 50 MHz 0.35mm 1997
GT-96100A High performance communication controller. 100 MHz 0.25mm 1st Qtr 2000
GT-96122 High performance channelized communication 100 MHz 0.18mm 1st Qtr 2001
controller for MIPS-based systems.
GT-99132 High performance channelized communication 100 MHz 0.18mm 2nd Qtr 2001
controller for PowerPC-based systems.
Switching Products. Galileo is considered to be the pioneer and an industry
leader in switched Ethernet controllers and processors, in terms of established
customers and breadth of product offerings. In 1999, Galileo introduced its
third and fourth generation families of switched Ethernet controllers, the
latter being the award-winning GalNet 3 family of Layer 3/4/5 switched
processors, which expands Galileo's switched technology to the areas of POS and
ATM. Our GalNet 3 family delivers a comprehensive solution for networks where it
is critical to effectively carry multiple types of media, to guarantee Quality
of Service, or QoS, to bill for services and establish service level agreements,
to provide redundancy for high reliability, and to effectively bridge to other
technologies like POS and ATM. These features specifically address the
communication demands of today's systems that allow voice, video and data to
move through a single converged network with unprecedented reliability and
quality.
Our switching products can be used individually or can be cascaded using
our proprietary GalNet protocol to produce scalable, flexible switching systems.
We use a modular approach as the foundation of our system level architecture,
resulting in highly programmable products that can be easily and flexibly
configured by system vendors. Accordingly, customers can cost-effectively and
quickly produce a suite of products with a range of price/performance
characteristics. We have switching products that work with both fiber-optic and
twisted pair copper physical layer devices.
In 1998, with the introduction of the GalNet-II products, Galileo
implemented a proprietary chip-to-chip communications channel called "G.Link."
G.Link provides much higher communications bandwidth between switch controllers
than the PCI bus used in the GalNet family, and facilitates the use of "G.Link
Crossbar Switches" to provide switch system expansion, management CPU
interfacing, and system stacking, as well as interface to other networking
architectures and protocols.
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Our current switch products are listed in the table below.
LAYER 2 SWITCHED CMOS INTRODUCTION
ETHERNET CONTROLLERS DESCRIPTION PERFORMANCE/ FREQUENCIES PROCESS DATE
- -------------------- ------------------------------- ------------------------ ------- ------------
GT-48001A GalNet family 8-port switched 10Mbits/sec 0.35mm 1996
Ethernet controllers.
GT-48002A GalNet 2-port Fast switched 10/100Mbits/sec 0.35mm 1996
Ethernet controllers.
GT-48004A GalNet 4-port and Fast switched 10/100Mbits/sec 0.35mm 1997
Ethernet controllers.
GT-48006A GalNet 2-port and Fast switched 10/100Mbits/sec 0.35mm 1998
Ethernet controllers without
PCI.
GT-48207 Galaxy 8-port 10+10/100Mbits/sec 0.35mm 1997
10Mbits/sec+2-port 10/100
Mbits/sec unmanaged Fast
switched Ethernet controllers.
GT-48208 Galaxy 8-port 10+10/100Mbits/sec 0.35mm 1997
10Mbits/sec+2-port 10/100
Mbits/sec Fast switched
Ethernet controllers with
advanced management.
GT-48212 Galaxy 10-port 10+10/100Mbits/sec 0.35mm 1997
10Mbits/sec+2-port 10/100
Mbits/sec Fast switched
Ethernet controllers with
advanced management.
GT-48310A GalNet-II 8-port Fast switched 10/100Mbits/sec 0.35mm 1998
Ethernet controller with
advanced management.
GT-48311A GalNet-II 8-port Fast switched 10/100Mbits/sec 0.35mm 1998
Ethernet controller with
standard management.
GT-48312A GalNet-II low-cost 8-port 10/100Mbits/sec 0.35mm 1998
unmanaged Fast switched
Ethernet controller.
GT-48313 GalNet-II Standalone 8-port 10/100Mbits/sec 0.35mm 1998
unmanaged Fast switched
Ethernet controller.
GT-48314 GalNet-II Standalone 8-port 10/100Mbits/sec 0.35mm 1998
Fast switched Ethernet
controller.
GT-48315 GalNet-II Standalone 5-port 10/100Mbits/sec 0.35mm 1998
Fast switched Ethernet
controller.
GT-48320A GalNet-II 1-port Gigabit 10/100/1000Mbits/sec 0.35mm 1998
switched Ethernet controller
with advanced management.
GT-48322A GalNet-II 1-port unmanaged 10/100/1000Mbits/sec 0.35mm 1998
Gigabit switched Ethernet
controller.
GT-48350 GalNet-2+ 8-port Fast switched 10/100Mbits/sec 0.25mm 3rd Qtr 1999
Ethernet controller with memory
and advanced QoS.
GT-48360 GalNet-2+ 1-port Gigabit 10/100/1000Mbits/sec 0.25mm 1st Qtr 2000
switched Ethernet controller
with memory and advanced QoS.
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LAYER 3 SWITCHED PERFORMANCE/ CMOS INTRODUCTION
ETHERNET PROCESSORS DESCRIPTION FREQUENCIES PROCESS DATE
- ------------------- -------------------------------- -------------------- ------- ------------
GT-48510A GalNet-3 8-port converged voice/ 10/100Mbits/sec 0.18mm 4th Qtr 1999
video/data network switch
processor.
GT-48520 GalNet-3 1-port Gigabit Ethernet 10/100/1000Mbits/sec 0.18mm 4th Qtr 1999
converged voice/video/data
network switch processor.
GT-48540 GalNet-3 1-port OC-12 POS/ATM 10/100/1000Mbits/sec 0.18mm 4th Qtr 1999
converged voice/video/data
network switch processor.
GT-48411A GalNet-3 8-port converged voice/ 10/100Mbits/sec 0.18mm 3rd Qtr 2000
video/data switched Ethernet
processor.
GT-48421 GalNet-3 1-port converged voice/ 10/100/1000Mbits/sec 0.18mm 3rd Qtr 2000
video/data switched Ethernet
processor.
GT-48511A GalNet-3 8-port converged voice/ 10/100Mbits/sec 0.18mm 3rd Qtr 2000
video/data network switch
processor.
GT-48521 GalNet-3 1-port converged voice/ 10/100/1000Mbits/sec 0.18mm 3rd Qtr 2000
video/data network switch
processor.
G.LINK
CROSSBAR SWITCHES
GT-48300 GalNet-II 4-port G.Link crossbar 2.6 Gbps G.Link 0.35mm 1998
switch controller with 66 MHz
PCI.
GT-48301 GalNet-II 4-port G.Link crossbar 2.6 Gbps G.Link 0.35mm 1998
switch controller without PCI.
GT-48302 GalNet-II 8-port G.Link crossbar 2.6 Gbps G.Link 0.35mm 1998
switch controller with 66 MHz
PCI.
GT-48302A GalNet-II 8-port G.Link crossbar 2.9 Gbps G.Link 0.25mm 1998
switch controller with 66 MHz
PCI.
GT-48303A GalNet-II 6-port G.Link crossbar 2.9 Gbps G.Link 0.25mm 1998
switch controller with 66 MHz
PCI.
GT-48304 GalNet-II 12-port 3.2 Gbps G.Link 0.18mm 2nd Qtr 2000
G.Link crossbar switch
controller with 66 MHz PCI.
GALNET
INTERFACE DEVICES
- -----------------
GT-48330 Low-cost G.Link to CPU bridge device. 90 MHz 0.35mm 3rd Qtr 1999
GT-48331 G.Link to G.Link + bridge device. 90 MHz 0.35mm 3rd Qtr 1999
Wireless. We also believe there is a significant market opportunity
addressing the last 100 meters of the infrastructure, commonly called the last
mile. Our vision in this market is to provide the integrated circuits that allow
end users to be connected to their local area network's database on wireless
technology. We believe this is the way for the DSL or cable modem to be deployed
cost-effectively to the end user by allowing many users to share the cost of
deployment. We also see many other market opportunities and growth for the
wireless local area networks. As a result, we are committing resources to the
development of wireless local area network products.
CUSTOMERS, SALES AND MARKETING
Our direct sales force targets emerging high growth markets that have high
intensity communications processing requirements. Our customers for read channel
and preamplifier products are manufacturers of hard disk drives for the
enterprise, mobile and desktop markets. Our target customers for our physical
layer devices, switches and controllers are leading manufacturers of high speed
networking equipment. Prior to fiscal 2001, sales of storage products
represented 100% of our net revenues. In fiscal 2001, with the introduction of
our first physical layer device for the broadband communications market, sales
of storage products represented 85% of
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20
our net revenue with sales of broadband communications products representing 15%
of net revenue. A small number of customers have historically accounted for a
substantial portion of our revenue. The percentage of our revenue accounted for
by our five major customers in fiscal 2001, 2000, 1999 are set forth below.
CUSTOMER 2001 2000 1999
-------- ---- ---- ----
Samsung..................................................... 34% 36% 46%
Seagate..................................................... 22 24 43
Fujitsu..................................................... 11 14 2
Toshiba..................................................... 9 10 1
Hitachi..................................................... 8 14 7
---- ---- ----
Total............................................. 84% 98% 99%
==== ==== ====
To date, substantially all of our storage product sales have been made
through our direct sales force. We also complement and support our direct sales
force with manufacturers' representatives for storage products in North America,
Europe and Asia. In addition, we have entered into distribution agreements to
support our sales and marketing activities in the communications markets. We
also use stocking representatives outside of the United States for our
communication products. We anticipate that sales through distributors will
increase as a percentage of our revenues in future periods. However, we expect a
significant percentage of our sales will continue to come from direct sales to
key customers. As of March 31, 2001, our sales and marketing organization
consisted of 135 employees and 35 manufacturers' representatives.
Our sales are made under purchase orders received between one and four
months prior to the scheduled delivery date. These purchase orders can be
cancelled without charge if notice is given within an agreed upon period.
Because of the scheduling requirements of our foundries, we generally place firm
orders for products with our suppliers up to sixteen weeks prior to the
anticipated delivery date and typically prior to an order for the product. We
generally warrant our products for a 90-day period. To date, we have not
experienced material product returns or warranty expense.
Our marketing team works in conjunction with our sales force and is
organized around our product applications. Due to the complexity of our
products, we introduce new products to major customers with a global tour by a
marketing, sales and engineering team. We believe that individual meetings are
the most effective and rapid means of communicating the capabilities, benefits
and extremely technical specifications of each new product.
We use field application engineers to provide intensive technical support
and assistance to existing and potential customers in designing, testing and
qualifying systems designs that incorporate our products. We believe that
superior field applications engineering support plays a pivotal role in building
long-term relationships with customers by improving our customers'
time-to-market, maintaining a high level of customer satisfaction and
encouraging customers to use our next-generation products. As of March 31, 2001,
we had 25 field application engineers.
OUR TECHNOLOGY
We believe that our key technical competitive advantages result from the
collection of proprietary technologies that we have developed. Our products are
based on the following technologies:
- high bandwidth analog front-end technology;
- advanced communications algorithms;
- Internet Protocol knowledge;
- custom digital signal processors;
- design for advanced CMOS manufacturing processes; and
- reusable building blocks for integrated system-on-chip design.
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High Bandwidth Analog Front-End Technology
We have developed significant expertise in mixed-signal circuit design
architectures and techniques required to design high performance analog
front-ends, which provide the interface between the digital signal processor and
the physical transmission media. We have developed this technology for use with
advanced CMOS manufacturing processes, which allow us to cost effectively
integrate complex digital signal processing functions with other high level
system functions on a small silicon chip. Our mixed-signal circuits achieve
performance levels that are associated with more expensive, special purpose
integrated circuit manufacturing process technologies, such as BiCMOS. For
example, our analog front-ends for use in read channel applications achieve
conversion rates of up to 1.3 GHz using a 0.18-micron CMOS process. A conversion
rate of 1.3 GHz means that the analog to digital converter completes 1.3 billion
analog to digital conversion cycles per second. In addition to achieving high
performance, our mixed-signal circuits are designed to compensate for variations
inherent in current 0.25-, 0.18- and 0.15-micron CMOS manufacturing processes.
Our high bandwidth analog front-end technology can be used in various
communications-related applications. We are currently developing experimental
mixed-signal technologies for extreme high bandwidth applications, such as
physical layer devices for fiber-optic media operating at data rates of up to
3.125 gigabits per second for use in a high-speed shared storage devices, known
as storage area networks, or SANs.
Advanced Communications Algorithms
We have also developed complex communications algorithms that are required
for broadband communications-related applications. Our communications algorithms
perform the signal equalization, data detection and error corrections required
to overcome media imperfections such as substandard media, noise, signal level
degradation over distance, interference from adjacent lines and signal echo.
These communications algorithms enable us to design digital signal processors
for use in storage, Fast Ethernet and Gigabit Ethernet applications as well as
other possible future applications, such as broadband wireless products.
Our proprietary address recognition algorithms permit the proper
identification and handling of incoming Ethernet packets at full-wire speed,
while replacing expensive, fast static random access memories, or SRAMs, or
content addressable memories, or CAMs, with inexpensive dynamic random access
memories, or DRAMs. This algorithm is used in all of our switched Ethernet LAN
controllers and in our newer WAN communications controllers. This algorithm
enables these products to recognize between 8,000 and 64,000 distinct Ethernet
addresses -- depending on the product -- and to manage the traffic for entire
network segments.
Internet Protocol Knowledge
Our intimate knowledge in Internet Protocol, or IP, technologies is an
important asset in the area of converged networks. After many years of debate as
to what technology would be most appropriate to implement new-world converged
networks that not only carry data, but also voice and video, IP technologies
have been widely selected as the core technologies for such implementations. The
result of this is that the worldwide networks that separately carry voice and
data today are being re-designed into one unified converged network that uses IP
technologies at its core. Our GalNet-3 family is a state-of-the-art set of
products that use IP technologies to deliver a comprehensive solution for
networks where it is critical to effectively carry multiple types of media, to
guarantee Quality of Service, to bill for services and establish service level
agreements, to provide redundancy for high reliability, and to effectively
bridge to other technologies like POS and ATM. Our IP technology is especially
attractive to telecommunications customers, who traditionally have not
emphasized the development of this type of technology in-house.
Custom Digital Signal Processors
We target communications-related markets, which require very fast data
transfer rates and low power dissipation. To achieve the required performance
levels, we implement our signal processing algorithms in custom-designed digital
signal processors. Our Fast Ethernet digital signal processors perform several
billion operations per second while dissipating less than 100 milliwatts of
power. Our fastest read channel digital
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signal processors perform over 100 billion operations per second while
dissipating less than 1.2 watts of power. Such performance is not readily
available using standard programmable digital signal processing solutions. We
believe our custom digital signal processors, when combined with our library of
digital signal processing circuit building blocks, will enable us to implement
application specific digital signal processors that can perform at computational
rates of up to one trillion operations per second in very small silicon chips.
Small silicon chips result in low power dissipation, small packaging and low
overall system cooling requirements.
Design For Advanced CMOS Manufacturing Processes
While it is significantly more difficult to design high performance analog
integrated circuits in CMOS, CMOS provides multiple benefits compared to many
other processes for manufacturing integrated circuits, including significantly
lower manufacturing cost, more predictable migration to smaller process
geometries, more cost effective integration of additional functions in a single
integrated circuit and greater worldwide foundry capacity. We have successfully
combined advanced analog signal processing blocks with high speed digital signal
processors in 0.25-, 0.18- and 0.15-micron CMOS manufacturing processes. Based
on conversations with our customers, we believe that we have achieved a level of
circuit speed performance in CMOS process technologies that has typically only
been achieved with more expensive special fabrication techniques, such as
BiCMOS.
Reusable Building Blocks For Integrated System-On-Chip Design
We have developed a proprietary set of manufacturing process design rules
that we believe are scalable over several generations of manufacturing process
geometries. We have also collected a significant library of circuit building
blocks that can be reused with minimum modification in successive generations of
products and new designs. These design methodologies frequently allow us to
shorten time-to-market and reduce the cost for new products and take advantage
of the latest CMOS manufacturing processes. We believe that as manufacturing
process geometries continue shrinking, our customers will pursue silicon
integration strategies.
RESEARCH AND DEVELOPMENT
We believe that our future success depends on our ability to introduce
improvements to our existing products and to develop new products that deliver
cost effective solutions for both existing and new markets. Our research and
development efforts are directed largely to the development of proprietary
circuit designs for high bandwidth communications-related applications. We
devote a significant portion of our resources to expanding our core technology
library with designs that enable high performance, reliable communications over
a variety of physical transmission media. We are also focused on incorporating
functions currently provided by stand-alone integrated circuits into our
products to reduce customers' overall system costs.
We have assembled a core team of engineers who have extensive experience in
the areas of mixed-signal circuit design, digital signal processing, CMOS
technology and system-level architectures. As of March 31, 2001, we had 465
employees in engineering and process development. We have invested, and expect
that we will continue to invest, significant funds for research and development.
Our research and development expense was approximately $35.2 million in fiscal
2001, $14.5 million in fiscal 2000, and $5.8 million in fiscal 1999.
MANUFACTURING
We believe our fabless manufacturing approach provides us with the benefits
of superior manufacturing capability as well as flexibility to move the
manufacture, assembly and test of our products to those vendors that offer the
best capability at an attractive price. Our engineers work closely with our
foundries and other subcontractors to increase yields, lower manufacturing costs
and improve quality.
Integrated Circuit Fabrication
Our integrated circuits are fabricated using widely available CMOS
processes, which provide greater flexibility to engage independent foundries to
manufacture integrated circuits. By outsourcing manufacturing, we are able to
avoid the cost associated with owning and operating our own manufacturing
facility. This allows
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us to focus our efforts on the design and marketing of our products. We
currently outsource substantially all of our integrated circuit manufacturing to
Taiwan Semiconductor Manufacturing Company. We work closely with Taiwan
Semiconductor to forecast on a monthly basis our manufacturing capacity
requirements. Our integrated circuits are currently fabricated in 0.60-, 0.50-,
0.35-, 0.25-, 0.18- and 0.15-micron manufacturing processes. Because finer
manufacturing processes lead to enhanced performance, smaller silicon chip size
and lower power requirements, we continually evaluate the benefits and
feasibility of migrating to smaller geometry process technology in order to
reduce cost and improve performance.
Assembly And Test
Some of our products are shipped from our third-party foundries to
third-party assembly and test facilities where they are assembled into finished
integrated circuit packages and tested. We outsource all product packaging and
testing requirements for these products to several assembly and test
subcontractors, including ST Assembly Test Services in Singapore, Siliconware
Precision Industries in Taiwan and Amkor Technology in the Philippines. The
remainder of our products are manufactured on a turnkey basis, in which we
purchase fully assembled and tested products from our foundries. Our products
are designed to use low cost, standard packages and to be tested with widely
available test equipment. In addition, we specifically design our integrated
circuits for ease of testability, further reducing manufacturing costs.
Quality Assurance
We build quality into our products starting with the design and development
process. Our designs are subjected to extensive circuit simulation under extreme
conditions of temperature, voltage and processing before being committed to
manufacture. We pre-qualify each of our subcontractors and conduct regular
in-depth quality audits. We closely monitor foundry production to ensure
consistent overall quality, reliability and yield levels. All of our independent
foundries and assembly and test subcontractors have been awarded ISO 9000
certification.
INTELLECTUAL PROPERTY
Our future revenue growth and overall success depend in large part on our
ability to protect our intellectual property. We rely on a combination of
patents, copyrights, trademarks, trade secret laws, contractual provisions and
licenses to protect our intellectual property. We also enter into
confidentiality agreements with our employees, consultants, suppliers and
customers and seek to control access to, and distribution of, our documentation
and other proprietary information. Despite these precautions, it may be possible
for a third-party to copy or otherwise obtain and use our products and
technology without authorization, develop similar technology independently or
design around our patents.
As of March 31, 2001, we have been issued 19 United States patents on
various aspects of our technology, with expiration dates ranging from 2015 to
2018, and we have filed a number of additional United States patent
applications. However, there can be no assurance that patents will ever be
issued for these applications. Furthermore, it is possible that our patents may
be invalidated, circumvented, challenged or licensed to others.
In addition, the laws of some foreign countries in which our products are
or may be developed, manufactured or sold, including various countries in Asia,
may not protect our products or proprietary information to the same extent as do
the laws of the United States and thus make the possibility of piracy of our
technology and products more likely in these countries.
We have expended and will continue to expend considerable resources in
establishing a patent position designed to protect our intellectual property.
While our ability to compete is enhanced by our ability to protect our
intellectual property, we believe that, in view of the rapid pace of
technological change, the combination of the technical experience and innovative
skills of our employees may be as important to our business as the legal
protection of our patents and other proprietary information.
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From time to time, we may desire or be required to renew or to obtain
licenses from third parties in order to further develop and effectively market
commercially viable products. We cannot be sure that any necessary licenses will
be available or will be available on commercially reasonable terms.
The integrated circuit industry is characterized by vigorous pursuit and
protection of intellectual property rights, which have resulted in significant
and often time consuming and expensive litigation. Although there is currently
no pending or threatened intellectual property litigation filed against us,
there can be no assurance that third parties will not assert claims of
infringement against us. Such claims, even those without merit, could be time
consuming and result in costly litigation. We may not prevail in any such
litigation or may not be able to license any valid and infringed patents from
third parties on commercially reasonable terms. Litigation, regardless of the
outcome, is likely to result in substantial cost and diversion of our resources,
including our management's time. Any such litigation could harm our business and
financial results.
COMPETITION
The markets for storage and broadband communications devices are intensely
competitive and characterized by rapid technological change, evolving standards,
short product life cycles and pricing pressures imposed by high volume
customers. We expect competition to intensify as current competitors expand
their product offerings and new competitors enter the market.
We believe that our ability to compete successfully in the rapidly evolving
markets for our products depends on a number of factors, including:
- performance, features, quality and price of our products;
- the timing and success of new product introductions by us, our customers
and our competitors;
- the emergence of new industry standards;
- our ability to obtain adequate foundry capacity;
- the number and nature of our competitors in a given market; and
- general market and economic conditions.
Our current products face competition from a number of sources. We believe
our principal competitors in the read channel market are Lucent Technologies and
STMicroelectronics. Our primary competitors in the preamplifier market are Texas
Instruments and Lucent Technologies. In the broadband communications market for
physical layer devices, we compete with Broadcom, Intel, Texas Instruments and
National Semiconductor. In the market for system controllers, our competitors
include NEC with respect to the MIPS microprocessor, and Motorola and IBM with
respect to the PowerPC microprocessor. Our switched Ethernet LAN controllers
compete with products from companies such as Broadcom. Our WAN communications
controllers compete directly with products from companies such as Motorola,
Siemens, and PMC-Sierra. In addition, we expect increased competition in the
future from other emerging and established companies.
Many of our current competitors and potential competitors have longer
operating histories, greater name recognition, access to larger customer bases
and significantly greater financial, sales and marketing, manufacturing,
distribution, technical and other resources than us. As a result, they may be
able to respond more quickly to changing customer demands or to devote greater
resources to the development, promotion and sale of their products than we can.
Our current or future competitors may develop and introduce new products that
will be priced lower, provide superior performance or achieve greater market
acceptance than our products. In addition, in the event of a manufacturing
capacity shortage, these competitors may be able to manufacture products when we
are unable to do so.
Furthermore, current or potential competitors have established or may
establish, financial and strategic relationships among themselves or with
existing or potential customers or other third parties to increase the ability
of their products to address the needs of our prospective customers.
Accordingly, it is possible that new competitors or alliances among competitors
could emerge and rapidly acquire significant market share, which would harm our
business.
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In addition, many of our customers and potential customers have substantial
technological capabilities and financial resources. Some customers have already
developed, or in the future may develop, technologies that will compete directly
with our products. We may also face competition from suppliers of products based
on new or emerging technologies.
Historically, average unit selling prices in the integrated circuit
industry in general, and for our products in particular, have decreased over the
life of a particular product. We expect that the average unit selling prices of
our products will continue to be subject to significant pricing pressures. In
order to offset expected declines in the average unit selling prices of our
products, we will likely need to reduce the cost of our products. We intend to
accomplish this by implementing design changes that lower the cost of
manufacturing, assembly and testing by negotiating reduced charges by our
foundries as and if volumes increase and by successfully managing our
manufacturing, assembly and testing relationships. Because we do not operate our
own manufacturing, assembly or testing facilities, we may not be able to reduce
our costs as rapidly as companies that operate their own facilities. If we fail
to introduce lower cost versions of our products in a timely manner or to
successfully manage our manufacturing, assembly and testing relationships, our
business would be harmed.
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MANAGEMENT
Set forth below is certain information regarding the executive officers and
some of the other officers of Marvell and its subsidiaries, together with the
positions currently held by those persons, as of April 20, 2001.
NAME OF OFFICER AGE POSITIONS HELD WITH MARVELL AND ITS SUBSIDIARIES
--------------- --- ------------------------------------------------
Sehat Sutardja....................... 39 Co-Chairman of the Board, President and Chief
Executive Officer of Marvell Technology Group Ltd.;
President, Chief Executive Officer and Director of
Marvell Semiconductor, Inc.
Weili Dai............................ 39 Executive Vice President, Secretary and Director of
Marvell Technology Group Ltd.; Executive Vice
President of the Communications Business Group and
Director of Marvell Semiconductor, Inc.
Pantas Sutardja...................... 38 Vice President and Director of Marvell Technology
Group Ltd.; Chief Technology Officer and Director of
Marvell Semiconductor, Inc.
George Hervey........................ 54 Vice President of Finance and Chief Financial Officer
of Marvell Technology Group Ltd.; Vice President of
Finance and Chief Financial Officer of Marvell
Semiconductor, Inc.
Avigdor Willenz...................... 44 Director of Marvell Technology Group Ltd.; Executive
Vice President of the Communications Business Group of
Galileo Technology Ltd.
Manuel Alba.......................... 45 Director of Marvell Technology Group Ltd.; Vice
President of Strategy and Business Development of the
Communications Business Group of Galileo Technology,
Inc.
Alan J. Armstrong.................... 37 Vice President of Marketing of the Storage Business
Group of Marvell Semiconductor, Inc.
Bill Brennan......................... 37 Vice President of Sales of the Storage Business Group
of Marvell Semiconductor, Inc.
Gani Jusuf........................... 38 Vice President of Product Development of the
Communications Business Group of Marvell
Semiconductor, Inc.
Dave Matteucci....................... 48 Vice President and General Manager, Internetworking
Products Business Unit of the Communications Business
Group of Galileo Technology, Inc.
Nersi Nazari......................... 42 Vice President of Signal Processing Technology of
Marvell Semiconductor, Inc.
George Papa.......................... 52 Vice President of Worldwide Sales of the
Communications Business Group of Marvell
Semiconductor, Inc.
Ed Rodriguez......................... 43 Vice President of Operations of Galileo Technology,
Inc.
Gary Smerdon......................... 39 Vice President of Marketing, Switching Products
Business Unit of the Communications Business Group of
Galileo Technology, Inc.
Moshe Steiner........................ 42 Vice President and General Manager, Switching Products
Business Unit of the Communications Business Group of
Galileo Technology Ltd.
Lawrence Tse......................... 42 Vice President of Engineering, Wireless of Marvell
Semiconductor, Inc.
Lee Chung Yiu........................ 45 Vice President of Engineering, Core Technology of
Marvell Semiconductor, Inc.
Set forth below is certain information concerning the business experience
during the past five years of each of the individuals named above.
Sehat Sutardja is a co-founder of Marvell. Dr. S. Sutardja has served as
its President since inception and as its Co-Chairman of the Board and Chief
Executive Officer since August 1995. In addition, he has served as President,
Chief Executive Officer and a Director of Marvell Semiconductor, Inc. since its
inception. From 1989 until 1995, Dr. Sutardja served as a manager and principal
project engineer at 8X8 Inc., a designer and
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manufacturer of digital communications products. Dr. Sutardja received his
Master of Science and Ph.D. degrees in Electrical Engineering and Computer
Science from the University of California at Berkeley. Dr. Sutardja is the
husband of Weili Dai and the brother of Dr. Pantas Sutardja.
Weili Dai is a co-founder of Marvell. Ms. Dai has served as its Vice
President and one of its directors since inception and its Secretary since June
2000. Ms. Dai was promoted from Vice President to Executive Vice President in
1996, which position she currently holds. Ms. Dai has also served as Executive
Vice President and a Director of Marvell Semiconductor, Inc. since its
inception. Ms. Dai also holds the position of Executive Vice President of the
Communications Business Group of Marvell Semiconductor, Inc. effective as of
April 2001. She is also responsible for the human resources functions. Ms. Dai
holds a Bachelor of Science degree in Computer Science from the University of
California at Berkeley. Ms. Dai is the wife of Dr. Sehat Sutardja.
Pantas Sutardja is a co-founder of Marvell. Dr. P. Sutardja has served as
its Vice President and one of its directors since inception, and as Vice
President of Engineering for Marvell Semiconductor, Inc. from its inception
until 1999, when he was appointed Chief Technology Officer. Dr. Sutardja has
also been a Director of Marvell Semiconductor, Inc. from inception. Dr. Sutardja
holds Bachelor of Science, Master of Science and Ph.D. degrees in Electrical
Engineering and Computer Science from the University of California at Berkeley.
Dr. Sutardja is the brother of Dr. Sehat Sutardja.
George Hervey joined Marvell in April 2000 as its Vice President of Finance
and Chief Financial Officer, and serves in a similar capacity for Marvell
Semiconductor, Inc. From March 1997 to April 2000, Mr. Hervey served as Senior
Vice President, Chief Financial Officer and Secretary for Galileo Technology
Ltd., which combined with Marvell in January 2001. From June 1992 to February
1997, Mr. Hervey was Senior Vice President of Finance and Chief Financial
Officer of S3 Incorporated, a designer and manufacturer of graphics and video
accelerators for personal computers and related peripheral products. Mr. Hervey
holds a Bachelor of Science degree in Business Administration from the
University of Rhode Island.
Avigdor Willenz joined Marvell in January 2001, upon the consummation of
the combination of Galileo Technology Ltd. with Marvell, as one of its directors
and as Executive Vice President of the Communications Business Group of Galileo
Technology Ltd. Mr. Willenz was the founder of Galileo Technology Ltd., and from
its inception in November 1992 until January 2001, Mr. Willenz served as its
Chairman of the Board and Chief Executive Officer. From August 1988 until
February 1993, Mr. Willenz was Corporate Product Definition Manager/Chief
Engineer for Integrated Device Technology (IDT), which develops semiconductor
devices for data networking and telecommunications equipment. Mr. Willenz serves
as a director for Radware Ltd. Mr. Willenz holds a Bachelor of Science degree in
Electrical Engineering from the Technion in Israel.
Manuel Alba joined Marvell in January 2001, upon the consummation of the
combination of Galileo Technology Ltd. with Marvell, as one of its directors and
as Vice President of Strategy and Business Development of the Communications
Business Group of Galileo Technology, Inc., a direct subsidiary of Galileo
Technology Ltd. From April 1994 until the combination of Galileo Technology Ltd.
with Marvell, Mr. Alba served as a director and the President of Galileo
Technology Ltd. and as President of Galileo Technology, Inc. Mr. Alba holds a
Bachelor of Science degree in Electrical Engineering from the National
Polytechnic Institute in Mexico City, a Master of Science degree in Electrical
Engineering from the University of Southern California and a Master of Business
Administration degree from the University of Santa Clara.
Alan J. Armstrong has served as Vice President of Marketing of the Storage
Business Group of Marvell Semiconductor, Inc. since June 1999. From 1992 until
1999, Dr. Armstrong held various positions at Cirrus Logic Inc., a designer and
manufacturer of analog and mixed-signal circuits, most recently as Director of
Product Planning and Applications for Data Storage Products. Dr. Armstrong holds
a Bachelor of Science degree in Electrical Engineering from San Diego State
University and Master of Science and Ph.D. degrees in Electrical Engineering
from the University of California, San Diego.
Bill Brennan has served as Vice President of Sales of the Storage Business
Group of Marvell Semiconductor, Inc. since July 2000. From 1993 until 2000, Mr.
Brennan served as Vice President for Exis,
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Inc., which specializes in account management for semiconductor companies. From
1986 to 1993, Mr. Brennan held various sales and marketing positions at Texas
Instruments, Inc., including Sales Manager for the hard disk drive segment. Mr.
Brennan holds a Bachelor of Science degree in Electrical Engineering from the
University of Colorado.
Gani Jusuf has served as Vice President of Product Development of the
Communications Business Group of Marvell Semiconductor, Inc., since February
2000. From 1998 to February 2000, Dr. Jusuf was a Research and Development
Manager for Agilent Technologies, Inc., a subsidiary of Hewlett-Packard Company,
which develops test measurement and monitoring products and devices. From 1995
to 1998, Dr. Jusuf served as Director of Engineering for Marvell Semiconductor,
Inc., where he was responsible for product definition and development. Dr. Jusuf
holds a Bachelor of Science, Master of Science and Ph.D. degrees in Electrical
Engineering and Computer Science from the University of California at Berkeley.
David Matteucci joined Marvell in January 2001 as the Vice President and
General Manager of the Internetworking Products Business Unit of the
Communications Business Group of Galileo Technology, Inc., upon consummation of
the combination of Galileo Technology Ltd. with Marvell. From March 2000 until
the combination of Galileo Technology Ltd. with Marvell, Mr. Matteucci served as
Vice President and General Manager, Internetworking Products Group for Galileo
Technology Ltd. From 1976 to March 2000, Mr. Matteucci held a number of
positions with National Semiconductor Corporation, most recently as Director of
Information Appliance Products. Mr. Matteucci holds a Bachelor of Science degree
in Electrical Engineering from the University of California at Berkeley and a
Master of Business Administration degree from Santa Clara University.
Nersi Nazari has served as Vice President of Signal Processing Technology
for Marvell Semiconductor, Inc. since October 1997. From 1994 until 1997, Dr.
Nazari served as Chief Technologist at GEC Plessey Semiconductors Ltd., a
designer and manufacturer of integrated circuits, including data storage and
data communications products. Dr. Nazari holds Bachelor of Science degrees in
Electrical Engineering and Mathematics from Southern Illinois University, a
Master of Science degree in Electrical Engineering from the University of
Missouri, and a Ph.D. in Electrical Engineering from the University of Colorado.
George Papa has served as Vice President of Worldwide Sales of the
Communications Business Group of Marvell Semiconductor, Inc. since February
2000. From 1997 until 2000, Mr. Papa served as Vice President of Worldwide Sales
for Level One Communications, Inc., a subsidiary of Intel Corporation. From 1991
to 1997, Mr. Papa served as Vice President of North American Sales for Siemens
Corporation. Mr. Papa holds a Bachelor of Science degree in Electrical
Engineering from Northeastern University.
Ed Rodriguez joined Marvell in January 2001 as Senior Vice President and
Chief Operating Officer of Galileo Technology, Inc., and in April 2001 was
promoted to Vice President of Operations of Galileo Technology, Inc. From May
1999 until the combination of Galileo Technology Ltd. with Marvell in January
2001, Mr. Rodriguez served as Senior Vice President and Chief Operating Officer
of Galileo Technology, Inc. From March 1998 to May 1999, Mr. Rodriguez was Vice
President and General Manager of the Datacom Division of Cypress Semiconductor
Corporation. Prior to working at Cypress Semiconductor Corporation, Mr.
Rodriguez spent 17 years at National Semiconductor Corporation, most recently as
Vice President and General Manager of its Networking Products Division. Mr.
Rodriguez holds Bachelor of Science and Master of Science degrees in Electrical
Engineering from the University of Miami.
Gary Smerdon joined Marvell in January 2001 as the Vice President of
Marketing of the Switching Products Business Unit of the Communications Business
Group of Galileo Technology, Inc. From September 2000 until the combination of
Galileo Technology Ltd. with Marvell in January 2001, Mr. Smerdon served as Vice
President of Marketing, Switching Products Group of Galileo Technology, Inc.
From May 1999 to August 2000, Mr. Smerdon was Vice President of Sales for
RealChip Communications, Inc. a communications semiconductor startup. Prior to
RealChip, Mr. Smerdon spent 14 years at Advanced Micro Devices, Inc. where he
held marketing and sales positions, most recently as Director of Marketing for
the Networking Products Division. Mr. Smerdon holds a Bachelor of Science degree
in Electrical Engineering from Duke University.
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Moshe Steiner joined Marvell in January 2001 as the Vice President and
General Manager of the Switching Products Business Unit of the Communications
Business Group of Galileo Technology Ltd. From October 1999 until the
combination of Galileo Technology Ltd. with Marvell in January 2001, Mr. Steiner
served as Vice President and General Manager, Switching Products Group of
Galileo Technology Ltd., and from February 1998 to October 1999, he served as
Local Area Network Products Director of Galileo Technology Ltd. From February
1996 to January 1998, Mr. Steiner was Vice President of Technologies at Zapex
Technologies, Inc., a Japanese-American VLSI company that developed solutions
for MPEG-2 digital video compression applications. Before Zapex, Mr. Steiner
worked for Intel Israel for more than 10 years, most recently leading the MMX
cluster development of the first Pentium-MMX CPU. Mr. Steiner holds a Bachelor
of Science degree in Civil Engineering and a Master of Business Administration
degree from the Technion in Israel.
Lawrence Tse has served as Vice President of Engineering, Wireless, of
Marvell Semiconductor, Inc. since June 2000. From 1998 to 2000, Mr. Tse served
as the Vice President of Engineering for Volterra Semiconductor Corporation, a
designer and manufacturer of power management products. From 1991 until 1998, he
held various positions at Chrontel, Inc., a designer and manufacturer of
mixed-signal visual communication products, most recently as Vice President of
Engineering. Mr. Tse holds a Bachelor of Engineering degree in Electrical
Engineering from McMaster University, Canada, and a Master of Science degree in
Electrical Engineering from the University of California at Berkeley.
Lee Chung Yiu has served as Vice President of Engineering, Core Technology
of Marvell Semiconductor, Inc. since May 1999. From 1995 until 1997, Dr. Yiu
served as the Director of Engineering for SEEQ Technology Inc., a supplier of
Ethernet data communications products for networking applications. From 1997
until 1999, Dr. Yiu was the Vice President of Engineering for Newave
Semiconductor Corporation, a privately held company developing integrated
circuits for the telecommunications market. Dr. Yiu holds a Bachelor of Science
degree in Electrical Engineering from National Taiwan University and Master of
Science and Ph.D. degrees in Electrical Engineering from the University of
California at Berkeley.
EMPLOYEES
As of March 31, 2001, we had a total of 753 employees, of which 465 were in
research and development, 135 in sales and marketing, 62 in operations and 91 in
general and administration. Our employees are not represented by any collective
bargaining agreements, and we have not experienced any work stoppage. We
consider our relations with our employees to be good.
ITEM 2. PROPERTIES.
Our primary facilities, housing research and design functions as well as
elements of sales, marketing and administration, are located in Sunnyvale,
California. These facilities consist of approximately 97,000 square feet with
lease terms expiring through June 2005. In addition to these properties, we
lease approximately 41,000 square feet in San Jose, California for sales,
administration, and operations, approximately 33,000 square feet in Moshav
Manof, Israel for research and design, and approximately 13,000 square feet in
Singapore for operations, sales, marketing and administration.
We lease additional space in Israel, Taiwan, Japan, the United Kingdom and
the United States which are occupied by some of our sales offices, design
centers and field application engineers. Based upon our estimates of future
hiring, we believe that our current facilities will be adequate to meet our
requirements through fiscal 2002.
ITEM 3. LEGAL PROCEEDINGS.
We are party to claims and litigation proceedings arising in the normal
course of business. Although the legal responsibility and financial impact with
respect to such claims and litigation cannot currently be ascertained, we do not
believe that these other matters will result in our payment of monetary damages,
net of any applicable insurance proceeds, that, in the aggregate, would be
material in relation to our consolidated financial position or results of
operations.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At a special general meeting of shareholders held on January 18, 2001, our
shareholders approved:
- the merger of Galileo Technology Ltd., a corporation formed under the
laws of the State of Israel, into our subsidiary, so that Galileo became
our wholly-owned subsidiary;
- the issuance of up to 31,564,708 shares of our common stock to Galileo
shareholders in connection with the acquisition; and
- our assumption and adoption of the stock option plans of Galileo.
The transaction with Galileo Technology Ltd. was approved by 70,411,840
shares, with 98,127 shares voting against the transaction, 3,829 shares
abstaining and 0 broker non-votes.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION
Our shares of common stock are listed on the Nasdaq National Market under
the symbol "MRVL." Our common stock began trading on June 27, 2000, upon
completion of our initial public offering. The following table shows, for the
periods indicated, the high and low intra-day sale prices for our common stock
on the Nasdaq National Market.
2001 FISCAL QUARTER HIGH LOW
------------------- ------- ------
First Quarter............................................. n/a n/a
Second Quarter............................................ $ 70.50 $42.25
Third Quarter............................................. $109.75 $41.63
Fourth Quarter............................................ $ 57.44 $15.38
As of April 20, 2001, the approximate number of record holders of our
common stock was 339.
DIVIDENDS
We have never declared or paid a cash dividend on our common stock and do
not anticipate paying any cash dividends in the foreseeable future.
RECENT SALES OF UNREGISTERED SECURITIES
From January 30, 2000 through January 27, 2001, we issued and sold the
following unregistered securities:
- We issued an aggregate of 4,008,888 shares of common stock between
February 2000 and June 2000 to our employees and directors upon exercise
of stock options for aggregate consideration of approximately $3,367,000
in cash. The exercise prices for these options ranged from $0.03 to
$15.00 per share.
- We issued an aggregate of 91,355 shares of Series D preferred stock at
$4.33 per share in May and June 2000 pursuant to the exercise of warrants
for aggregate consideration of approximately $400,000 in cash. All shares
of our Series D preferred stock automatically converted, on a
four-for-one basis, into shares of common stock upon the consummation of
our initial public offering in June 2000.
- We issued an aggregate of 172,947 shares of common stock in December 2000
pursuant to the exercise of warrants to purchase 45,000 shares of Series
D preferred stock at $4.33 per share which were converted to warrants to
purchase 180,000 shares of common stock at $1.0825 per share upon
consummation of our initial public offering in June 2000. These warrants
were exercised on a net basis, and the warrant holder surrendered
warrants to purchase 7,053 shares of common stock at $1.0825 per share in
consideration for the 172,947 shares issued upon exercise.
- We issued an aggregate of 56,742 shares of common stock in December 2000
pursuant to the exercise of warrants to purchase 60,000 shares of common
stock at $1.50 per share. These warrants were exercised on a net basis,
and the warrant holder surrendered warrants to purchase 3,258 shares of
common stock at $1.50 per share in consideration for the 56,742 shares
issued upon exercise.
The sales and issuances of securities listed above were deemed to be exempt
from registration under Regulation D under Section 4(2) of the Securities Act,
as transactions not involving a public offering, or by virtue of Rule 701 under
the Securities Act, as transactions pursuant to compensatory benefit plans and
contracts relating to compensation. All of the foregoing securities are deemed
restricted securities for purposes of the Securities Act.
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USE OF PROCEEDS
Our Registration Statement on Form S-1 (Registration No. 333-33086) under
the Securities Act of 1933, as amended, relating to our initial public offering
of our common stock became effective on June 26, 2000. A total of 6,900,000
shares of our common stock were registered. All shares were sold by the company,
resulting in aggregate gross proceeds of $103.5 million. The managing
underwriters were Goldman, Sachs & Co., Lehman Brothers and J.P. Morgan & Co.
The offering commenced and was completed on June 27, 2000, at a price to the
public of $15.00 per share. The initial public offering resulted in net proceeds
to us of $94.0 million, after deducting underwriting commissions of $7.2 million
and offering expenses of $2.3 million, which were paid to unaffiliated persons.
As of January 31, 2001, these proceeds were invested in money market funds.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
The following selected consolidated financial data should be read in
conjunction with "Item 7 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Item 8 -- Financial Statements and
Supplementary Data" contained elsewhere in this Form 10-K.
YEARS ENDED JANUARY 31,
-------------------------------------------------
2001 2000 1999 1998 1997
--------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenue................................ $ 143,894 $81,375 $21,253 $ 625 $ 190
Costs and expenses:
Cost of goods sold(1)................. 67,047 33,773 10,103 312 --
Research and development(2)........... 35,152 14,452 5,837 5,018 1,350
Selling and marketing(3).............. 21,686 10,436 4,631 1,671 618
General and administrative(4)......... 6,185 3,443 1,190 1,028 468
Amortization of stock-based
compensation........................ 8,259 2,175 42 -- --
Amortization of goodwill and acquired
intangible assets................... 8,031 -- -- -- --
Acquired in-process research and
development(5)...................... 234,874 -- -- -- --
--------- ------- ------- ------- -------
Total costs and expenses......... 381,234 64,279 21,803 8,029 2,436
--------- ------- ------- ------- -------
Operating income (loss).................... (237,340) 17,096 (550) (7,404) (2,246)
Interest and other income, net............. 4,559 330 74 6 94
--------- ------- ------- ------- -------
Income (loss) before income taxes.......... (232,781) 17,426 (476) (7,398) (2,152)
Provision for income taxes................. 2,339 4,356 483 46 1
--------- ------- ------- ------- -------
Net income (loss).......................... $(235,120) $13,070 $ (959) $(7,444) $(2,153)
========= ======= ======= ======= =======
Basic net income (loss) per share.......... $ (3.55) $ 0.32 $ (0.03) $ (0.24) $ (0.08)
Diluted net income (loss) per share........ $ (3.55) $ 0.16 $ (0.03) $ (0.24) $ (0.08)
Weighted average shares -- basic........... 66,259 41,094 32,470 30,436 25,593
Weighted average shares -- diluted......... 66,259 81,545 32,470 30,436 25,593
AS OF JANUARY 31,
-----------------------------------------------
2001 2000 1999 1998 1997
---------- ------- ------ ------ ------
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments................................. $ 224,063 $16,600 $5,515 $3,307 $4,763
Working capital............................... 215,787 22,611 6,865 2,682 4,426
Total assets.................................. 2,447,486 46,500 16,563 5,291 5,267
Notes payable and capital lease obligations,
less current portion........................ -- 36 897 21 --
Mandatory redeemable convertible preferred
stock....................................... -- 22,353 17,524 13,465 7,176
Total shareholders' equity (deficit).......... 2,356,666 7,940 (9,350) (9,578) (2,289)
- ---------------
(1) Excludes amortization of stock-based compensation of $416, $11 and $0 in
fiscal 2001, 2000 and 1999.
(2) Excludes amortization of stock-based compensation of $3,367, $1,373 and $27
in fiscal 2001, 2000 and 1999.
(3) Excludes amortization of stock-based compensation of $3,997, $211 and $4 in
fiscal 2001, 2000 and 1999.
(4) Excludes amortization of stock-based compensation of $479, $580 and $11 in
fiscal 2001, 2000 and 1999.
(5) During fiscal 2001, we recorded an in-process research and development
charge of $234.9 million in connection with our acquisition of Galileo
Technology Ltd.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
This Form 10-K contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934 and Section 27A of the
Securities Act of 1933. These forward-looking statements involve a number of
risks and uncertainties, including those identified in the section of this Form
10-K titled "Additional Factors that May Affect Future Results" beginning at
page 38, which could cause actual results to differ from those discussed in the
forward-looking statements. Forward-looking statements in this Form 10-K are
identified by words such as "believes," "expects," "anticipates," "intends,"
"estimates," "should," "will," "may" and similar expressions. In addition, any
statements which refer to expectations, projections or other characterizations
of future events or circumstances are forward-looking statements. We undertake
no obligation to release publicly the results of any revisions to these
forward-looking statements that could occur after the filing of this Form 10-K.
You are urged to review carefully our various disclosures in this Form 10-K and
our other reports filed with the SEC that attempt to advise you of the risks and
factors that may affect our business.
During fiscal 2000, we changed our fiscal year-end to the Saturday nearest
January 31. In fiscal 1999, our fiscal year ended on January 31. For
presentation purposes, we refer to January 31 as our fiscal year-end for all
periods.
OVERVIEW
We design, develop and market integrated circuits using proprietary
communications mixed-signal and digital signal processing technology for
communications-related markets. We were founded in 1995, and our business has
grown rapidly since inception. We are a fabless integrated circuit company,
which means that we rely on independent, third-party contractors to perform
manufacturing, assembly and test functions. This approach allows us to focus on
designing, developing and marketing our products and significantly reduces the
amount of capital we need to invest in manufacturing products.
We began shipping our first generation read channel products in volume in
June 1998 and began volume shipments of preamplifier products in June 1999. In
December 1999, we introduced our first generation product for Fast Ethernet
applications, which began shipping and generating revenue in March 2000. In May
2000, we introduced our Alaska(TM) Gigabit Ethernet over copper transceiver,
which began shipping and generating revenue in July 2000. In September 2000, we
introduced our first System-On-Chip, or SOC, products which began shipping and
generating revenue in October 2000.
The storage market is highly competitive and is dominated by a small number
of large companies, including Seagate, Quantum, Western Digital, Samsung,
Hitachi, Fujitsu and Toshiba. These companies have historically experienced
marginal profit levels from sales of their storage products and are under
enormous pricing pressure from their customers, which they typically pass
through to their integrated circuit suppliers.
Historically, a relatively small number of customers have accounted for a
significant portion of our revenue. Sales to our three largest customers
accounted for 67% of revenue for the year ended January 31, 2001, and we expect
to continue to experience significant customer concentration from direct sales
to key customers. In addition, a significant portion of our products are sold to
customers outside of the United States. Sales to customers in Asia accounted for
92% of revenue for the year ended January 31, 2001. Because many manufacturers
and subcontractors of storage and communications devices are located in Asia, we
expect that a majority of our revenue will continue to be represented by sales
to customers in that region. All of our sales to date have been denominated in
United States dollars.
Our sales have historically been made on the basis of purchase orders
rather than long-term agreements. In addition, the sales cycle 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 expect to
increase research and development, selling and marketing, and general and
administrative expenditures as we seek to expand our operations. We anticipate
that the rate of new orders may vary significantly from quarter to quarter.
Consequently, if anticipated sales and shipments in any quarter do not occur
when expected, expenses
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and inventory levels could be disproportionately high, and our operating results
for that quarter and future quarters would be adversely affected.
On January 21, 2001, we completed our acquisition of Galileo Technology
Ltd. in a stock-for-stock transaction. Galileo develops high-performance
communications internetworking and switching products for the broadband
communications market. The acquisition has been accounted for using the purchase
method of accounting, and the operating results of Galileo have been included in
our consolidated financial statements from the date of acquisition. The total
purchase price for this acquisition was approximately $2.5 billion.
RESULTS OF OPERATIONS
The following table sets forth, for the years ended January 31, 2001, 2000
and 1999, information derived from our consolidated statements of operations
expressed as a percentage of net revenue.
YEARS ENDED JANUARY 31,
------------------------
2001 2000 1999
------ ----- -----
Net revenue................................................ 100.0% 100.0% 100.0%
Costs and expenses:
Cost of goods sold....................................... 46.6 41.5 47.5
Research and development................................. 24.4 17.8 27.5
Selling and marketing.................................... 15.1 12.8 21.8
General and administrative............................... 4.3 4.2 5.6
Amortization of stock-based compensation................. 5.7 2.7 0.2
Amortization of goodwill and acquired intangible
assets................................................ 5.6 -- --
Acquired in-process research and development............. 163.2 -- --
------ ----- -----
Total costs and expenses......................... 264.9 79.0 102.6
------ ----- -----
Operating income (loss).................................... (164.9) 21.0 (2.6)
Interest and other income, net............................. 3.1 0.4 0.3
------ ----- -----
Income (loss) before income taxes.......................... (161.8) 21.4 (2.3)
Provision for income taxes................................. 1.6 5.4 2.3
------ ----- -----
Net income (loss).......................................... (163.4)% 16.0% (4.6)%
------ ----- -----
YEARS ENDED JANUARY 31, 2001 AND 2000
Net Revenue. We recognize revenue upon shipment of product to our
customers, net of accruals for estimated sales returns and allowances. In March
2000, we entered into our first distribution agreement to support our sales and
marketing activities in the communications market. We generally grant our
distributors rights of return and price protection. We defer recognition of
product revenue on sales made through distributors when such sales are subject
to rights of return and price protection until the distributor sells the product
to a customer.
Net revenue increased to $143.9 million in fiscal 2001 from $81.4 million
in fiscal 2000. The increase in revenue primarily reflects increased volume
shipments of storage products and commencement of volume shipments of
communications products, which totaled $21.0 million in fiscal 2001. Although
average selling prices for storage products declined by approximately 8.8% from
fiscal 2000 to fiscal 2001, the volume of units shipped increased to
approximately 41.1 million units in 2001 from approximately 24.9 million units
in 2000. The decrease in average selling prices was primarily due to a product
mix change caused by an increase in preamplifier products shipped as a
percentage of total storage products shipped, which have a lower average selling
price than our read channel products, and to a lesser extent, a decrease in
average selling prices for our read channel products. Sales of read channel
products increased to $109.1 million in fiscal 2001 from $76.0 million in fiscal
2000. Sales of preamplifier products increased to $13.8 million in fiscal 2001
from $5.4 million in fiscal 2000. We expect that revenue from sales of storage
products for fiscal 2002 will be relatively consistent with the level of sales
of storage products we reported in fiscal 2001. However, we expect significant
growth in revenue from sales of communications products, in part due to our
acquisition of Galileo.
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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, and compensation and associated costs related to manufacturing
support, logistics and quality assurance personnel. Gross profit, which equals
net revenue less cost of goods sold, as a percentage of net revenue, decreased
to 53.4% in fiscal 2001 from 58.5% in fiscal 2000. The decrease in gross profit
was due to a decrease in average selling prices for storage products, an
increase in average cost per unit for read channel products due to a product mix
change, and an increase in preamplifier product revenues as a percentage of
total revenues, which contribute a lower gross profit than both read channel and
communications products. Our gross profits may decrease as a percentage of
revenue in future periods due to changes in the mix of products sold and
increased pricing pressures from our customers as well as from our competitors.
Research and Development. Research and development expense consists
primarily of compensation and associated costs relating to development
personnel, prototype costs, depreciation expenses and allocated occupancy costs
for these operations. Research and development expense was $35.2 million, or
24.4% of net revenue, in fiscal 2001 and $14.5 million, or 17.8% of net revenue,
in fiscal 2000. The increase in research and development expense was primarily
due to increases of approximately $8.4 million for the hiring of additional
development personnel and a resulting increase in salary and related costs,
approximately $5.7 million of increased spending for prototype and related
product tape-out costs for new product initiatives, approximately $726,000 for
increased depreciation expense due to significant purchases of computer aided
design software tools, and approximately $2.8 million for increased facility and
other allocable expenses related to our expanding operations. We expect that
research and development expense will increase in absolute dollars in future
periods as we develop new products and increase our number of research and
development personnel.
Selling and Marketing. Selling and marketing expense consists primarily of
compensation and associated costs relating to selling and marketing personnel,
sales commissions to independent sales representatives, promotional and other
marketing expenses, and allocated occupancy costs for these operations. Selling
and marketing expense was $21.7 million, or 15.1% of net revenue, in fiscal 2001
and $10.4 million, or 12.8% of net revenue, in fiscal 2000. The increase in
selling and marketing expense was primarily due to the hiring of additional
personnel and a resulting increase in salary and related costs of approximately
$5.1 million, increased sales commissions of approximately $1.6 million,
increased costs of approximately $1.6 million related to expanding our sales and
marketing activities as we broadened our communications customer and product
base, and increased facility and other allocable expenses of approximately $1.3
million related to our expanding operations. We expect that selling and
marketing expense will increase in absolute dollars in future periods as we hire
additional personnel, expand our sales and marketing efforts, particularly in
communications, and pay increased sales commissions.
General and Administrative. General and administrative expense consists
primarily of compensation and associated costs relating to general and
administrative personnel, professional fees and allocated occupancy costs for
these operations. General and administrative expense was $6.2 million, or 4.3%
of net revenue, in fiscal 2001 and $3.4 million, or 4.2% of net revenue, in
fiscal 2000. The increase in general and administrative expense was primarily
due to the hiring of additional personnel and a resulting increase in salary and
related costs of approximately $2.2 million. We expect that general and
administrative expenses will increase in absolute dollars in future periods as
we hire additional personnel, incur consulting costs for post implementation
support for our new enterprise resource planning system and incur legal and
other costs associated with being a public company and expanding our operations.
Amortization of Stock-Based Compensation. In connection with the grant of
stock options to our employees and directors, we recorded deferred stock-based
compensation of approximately $14.1 million through fiscal 2000 and recorded an
additional $25.6 million in fiscal 2001, $19.8 million of which related to stock
options assumed in connection with our acquisition of Galileo on January 21,
2001. Deferred stock-based compensation is being amortized under an accelerated
method over the remaining option vesting period. Amortization of stock-based
compensation expense was $8.3 million, or 5.7% of net revenue, in fiscal 2001
and $2.2 million, or 2.7% of net revenue, in fiscal 2000. The increase in
amortization expense was due to the additional amounts of deferred stock-based
compensation being recorded in fiscal 2001 and 2000.
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Amortization of Goodwill and Acquired Intangible Assets. In connection with
the acquisition of Galileo on January 21, 2001, we recorded approximately $1.7
billion of goodwill and $434.7 million of acquired intangible assets. Goodwill
is being amortized over its estimated economic life of five years, and acquired
intangible assets are being amortized over their estimated economic lives of
five to ten years. Goodwill and acquired intangible asset amortization expense
was approximately $8.0 million, or 5.6% of net revenue, in fiscal 2001. The
amount of amortization expense will increase significantly in fiscal 2002
because goodwill and intangible assets will be amortized for the full year in
fiscal 2002 compared to only seven days of amortization in fiscal 2001.
In-Process Research and Development. In connection with the acquisition of
Galileo on January 21, 2001, we purchased in-process research and development,
or IPRD, of approximately $234.9 million which represented approximately 9.4% of
the total purchase price. As of the acquisition date, the IPRD efforts had not
yet reached technological feasibility, and the IPRD had no alternative future
uses. Accordingly, the value of the purchased IPRD was expensed on the date of
acquisition.
The fair values of Galileo's IPRD, as well as their developed technologies,
were determined using the income approach, which discounts expected future cash
flows to present value. The discount rates used in the present value
calculations were derived from a weighted-average cost of capital analysis and
venture capital surveys, adjusted upward to reflect additional risks inherent in
the development life cycle. A discount rate of 16.5% was used for developed
technology, and rates between 21.5% and 34.0% were used for IPRD, depending on
the stage of completion of each technology. As of the date of acquisition, the
estimated cost to complete the technology under development was approximately
$21.0 million. Development of this technology remains a substantial risk due to
a number of factors, including the remaining effort to achieve technological
feasibility, rapidly changing customer markets and competitive threats from
other companies.
Interest and Other Income, Net. Interest and other income, net consists
primarily of interest earned on cash, cash equivalents and short-term
investments, offset by interest paid on notes payable and capital lease
obligations. Interest and other income, net was $4.6 million in fiscal 2001 and
$330,000 in fiscal 2000. The increase in interest and other income, net was due
to interest being earned on higher invested cash balances in fiscal 2001. The
net proceeds from our initial public offering of common stock, which were
received on June 30, 2000, contributed to the significant increase in interest
and other income, net in fiscal 2001.
Provision for Income Taxes. Our effective tax rate was (1%) for fiscal 2001
compared to 25% for fiscal 2000. Our effective rate for fiscal 2001 was affected
by non-deductible expenses relating to our acquisition of Galileo in January
2001 which was recorded using the purchase method of accounting. Excluding the
effect of goodwill and acquired intangible asset amortization and in-process
research and development expense, our effective tax rate for fiscal 2001 was
23%.
The difference between our effective rate and the federal rate of 35% is
due to the lower tax rates imposed on our operations in Bermuda, Singapore and
Israel and to the benefits realized from research and development credits in the
United States, partially offset by potential taxes on the portion of Bermuda
income that may be considered to be effectively connected with the conduct of a
trade or business in the United States. We have an undertaking from the
government of Bermuda that we will not be subject to tax on our income and
capital gains in Bermuda until March 28, 2016. Our operations in Singapore are
subject to a statutory tax rate of 26%; however, the Economic Development Board
of Singapore granted us Pioneer Status in July 2000, for a period of six years
commencing July 1, 1999, which could reduce the amount of taxes we pay in
Singapore. Our newly acquired operations in Israel have Approved Enterprise
Status which provides us with a tax holiday on undistributed Israeli income. We
anticipate that we will start paying some income tax in Israel beginning in
2004.
YEARS ENDED JANUARY 31, 2000 AND 1999
Net Revenue. Net revenue increased to $81.4 million in fiscal 2000 from
$21.3 million in fiscal 1999. Revenue increased primarily as a result of
continued market acceptance of our read channel products and commencement of
volume shipment of our preamplifier products. Although average selling prices
declined by approximately 20% from fiscal 1999 to fiscal 2000, the volume of
units shipped increased to approximately
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24.9 million units in fiscal 2000 from 5.1 million units in fiscal 1999. Sales
of read channel products increased to $76.0 million in fiscal 2000 from $21.2
million in fiscal 1999, while sales of preamplifier products increased to $5.4
million in fiscal 2000 from $8,000 in fiscal 1999.
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, and compensation and associated costs related to manufacturing
support, logistics and quality assurance personnel. Gross profit, which equals
net revenue less cost of goods sold, as a percentage of net revenue, increased
to 58.5% in fiscal 2000 from 52.5% in fiscal 1999. The increase in gross profit
was primarily due to the substantial increase in sales and a reduction in
product costs per unit in fiscal 2000 of approximately 15%.
Product costs per unit declined in fiscal 2000 due to a general decrease in
the prices charged by contract manufacturers of integrated circuits because of
the availability of capacity within the integrated circuit manufacturing
industry, as well as improvements in the manufacturing yields achieved through
the third quarter of fiscal 2000. We experienced a decline in yields in the
fourth quarter of fiscal 2000 due to the initial production ramp up of our
newer, more complex, read channel products.
Research and Development. Research and development expense consists
primarily of compensation and associated costs relating to development
personnel, prototype costs, depreciation expenses and allocated occupancy costs
for these operations. Research and development expense was $14.5 million, or
17.8% of net revenue, in fiscal 2000 and $5.8 million, or 27.5% of net revenue,
in fiscal 1999. The increase in research and development expense in absolute
dollars was primarily due to increases of approximately $3.6 million for the
hiring of additional development personnel, approximately $1.4 million for
increased spending for prototype and related product tape-out costs for new
product initiatives and approximately $537,000 for depreciation expense arising
from significant purchases of computer aided design software tools.
Selling and Marketing. Selling and marketing expense consists primarily of
compensation and associated costs relating to selling and marketing personnel,
sales commissions to independent sales representatives, promotional and other
marketing expenses, and allocated occupancy costs for these operations. Selling
and marketing expense was $10.4 million, or 12.8% of net revenue, in fiscal 2000
and $4.6 million, or 21.8% of net revenue, in fiscal 1999. The increase in
selling and marketing expense in absolute dollars was due primarily to the
hiring of additional personnel and a resulting increase in salary and related
costs of approximately $2.3 million, increased sales commissions of
approximately $1.8 million and increased costs of approximately $627,000 related
to expanding our sales and marketing activities as we broadened our customer and
product base.
General and Administrative. General and administrative expense consists
primarily of compensation and associated costs relating to general and
administrative personnel, professional fees and allocated occupancy costs for
these operations. General and administrative expense was $3.4 million, or 4.2%
of net revenue, in fiscal 2000 and $1.2 million, or 5.6% of net revenue, in
fiscal 1999. The increase in general and administrative expense in absolute
dollars was due primarily to the hiring of additional personnel and a resulting
increase in salary and related costs of approximately $1.6 million and increases
in legal, accounting and consulting fees of approximately $403,000.
Amortization of Stock-Based Compensation. In connection with the grant of
stock options to our employees and directors, we have recorded deferred
stock-based compensation of approximately $14.1 million, which is being
amortized under an accelerated method over the remaining option vesting period.
Amortization of stock-based compensation expense was $2.2 million, or 2.7% of
net revenue, in fiscal 2000 and $42,000, or 0.2% of net revenue, in fiscal 1999.
The increase in amortization expense was due to deferred stock-based
compensation recorded in fiscal 2000.
Interest and Other Income, Net. Interest and other income, net consists
primarily of interest earned on cash and cash equivalents, offset by interest
paid on notes payable and capital lease obligations. Interest and other income,
net was $330,000 in fiscal 2000 and $74,000 in fiscal 1999. The increase in
interest and other income, net was due to interest earned on higher invested
cash balances.
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Provision for Income Taxes. We accrued income taxes at an effective tax
rate of 25% since achieving consolidated profitability in fiscal 2000. The
difference between this rate and the federal rate of 35% is due to the lower tax
rates imposed on our operations in Bermuda and Singapore and to the benefits
realized from research and development credits in the United States, offset by
potential taxes on the portion of Bermuda income that may be considered to be
effectively connected with the conduct of a trade or business in the United
States.
LIQUIDITY AND CAPITAL RESOURCES
Our principal source of liquidity as of January 31, 2001 consisted of
$224.1 million of cash, cash equivalents and short-term investments. Prior to
receiving the net proceeds from our initial public offering, we financed our
operations through a combination of private sales of convertible preferred
stock, bank loans and capital lease financing and, beginning in fiscal 2000,
operating cash flows. We raised net proceeds of $94.0 million through our
initial public offering in June 2000. In addition, we received $68.5 million of
cash and cash equivalents, net of acquisition costs paid, and $39.9 million of
short-term investments as a result of our acquisition of Galileo in January
2001.
During fiscal 2001, cash provided by operating activities was $12.2 million
as compared to cash provided by operating activities of $12.6 million during
fiscal 2000 and cash used in operating activities of $2.9 million during fiscal
1999. The cash inflow from operations in fiscal 2001 and 2000 was primarily a
result of our generation of income in both years (excluding the non-cash impact
of depreciation and amortization, stock-based compensation, and acquired
in-process research and development expense), and increases in accounts payable,
accrued liabilities and income taxes payable, partially offset by increases in
accounts receivable, inventory and prepaid expenses and other assets. The cash
outflow from operations in fiscal 1999 was primarily as a result of our net loss
for the year and increases in accounts receivable and inventory, partially
offset by increases in accounts payable and accrued liabilities. Due to the
nature of our business, we experience working capital needs for accounts
receivable and inventory. We typically bill customers on an open account basis
on net 30-day payment terms. If sales levels were to increase, it is likely that
our level of accounts receivable would also increase. Our level of accounts
receivable would also increase if customers delayed their payments.
Additionally, in order to maintain an adequate supply of product for our
customers, we must carry a certain level of inventory. This inventory level may
vary based primarily upon the timing of orders received from customers and our
forecast of demand for these products. Other considerations in determining
inventory levels may include the product life cycle stage of the products and
competitive situations in the marketplace. Such considerations are balanced
against risk of obsolescence or potentially excess inventory levels.
Net cash provided by investing activities was $56.4 million during fiscal
2001, compared to net cash used in investing activities of $6.8 million during
fiscal 2000 and $1.6 million during fiscal 1999. The net cash provided by
investing activities during fiscal 2001 is attributable to the net cash received
as a result of our acquisition of Galileo, partially offset by purchases of
property and equipment. The net cash used in investing activities during fiscal
2000 and 1999 resulted solely from purchases of property and equipment.
Net cash provided by financing activities was $99.0 million during fiscal
2001, $5.3 million during fiscal 2000 and $6.7 million during fiscal 1999.
During fiscal 2001, cash provided by financing activities was primarily due to
our initial public offering in June 2000 which raised net proceeds of $94.0
million. During fiscal 2000 and 1999, cash provided by financing activities was
primarily attributable to proceeds from the issuance of convertible preferred
stock and the exercise of stock options and proceeds from borrowings on notes
payable, partially offset by the repayment of notes payable.
Our relationships with our foundries allow us to cancel all outstanding
purchase orders but require us to pay the foundries for expenses they have
incurred in connection with the purchase orders through the date of
cancellation. As of January 31, 2001, our foundries had incurred approximately
$16.0 million of manufacturing expenses on our outstanding purchase orders.
We believe that the net proceeds from our initial public offering, together
with existing cash and investment balances and cash generated by operations, are
sufficient to meet our capital requirements for at least the next 12 months.
After this period, capital requirements will depend on many factors, including
the
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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. To the extent that the
net proceeds from our initial public offering, together with existing cash and
investment balances and cash generated by operations, are insufficient to fund
our future activities, we may need to raise additional funds through public or
private equity or debt financing. Although we are currently not a party to any
agreement or letter of intent with respect to a potential acquisition or
strategic arrangement, we may enter into acquisitions or strategic arrangements
in the future, which also could require us to seek additional equity or debt
financing. Additional funds may not be available on terms favorable to us or at
all.
INFLATION
The impact of inflation on our business has not been material for fiscal
2001, 2000 and 1999.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities," as amended by
SFAS 137, "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133." In June
2000, the FASB issued SFAS 138, "Accounting for Certain Derivative Instruments
and Certain Hedging Activities," which amended certain terms and conditions of
SFAS 133. SFAS 133, as amended, requires that all derivative instruments be
recorded on the balance sheet at their fair market value. Changes in the fair
market value of derivatives are recorded each period in current earnings or
comprehensive income, depending on whether a derivative is designed as part of a
hedge transaction, and if so, the type of hedge transaction. All of our revenues
and the majority of our costs have been denominated in United States dollars,
and to date we have not entered into any derivative contracts. We will adopt
SFAS No. 133 and 138 on February 1, 2001. The adoption is not expected to have a
significant impact on our consolidated financial statements.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
In addition to the factors discussed in the "Overview" and "Liquidity and
Capital Resources" sections of this "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the following additional factors
may affect our future results. Many of these factors are beyond our control,
including business cycles and seasonal trends of the computing, semiconductor
and related industries.
THE RECENT SLOWDOWN IN THE WORLDWIDE ECONOMY HAS NEGATIVELY AFFECTED OUR
PROJECTED REVENUES AND OUR RESULTS OF OPERATIONS IN FISCAL 2002.
Over the last several months there has been a slowdown in worldwide
economies, including the United States, that has resulted in delays of new
orders for our products as well as reschedules of existing orders. This slowdown
has been brought about by a number of factors, including concerns about
inflation, decreased consumer confidence and reports of reduced corporate
profits. If economic conditions worsen, our revenues and results of operations
in fiscal 2002 and beyond will be materially and adversely affected.
WE HAVE DEPENDED ON SALES OF OUR READ CHANNEL AND PREAMPLIFIER PRODUCTS FOR A
SIGNIFICANT PORTION OF OUR REVENUE TO DATE, AND GALILEO HAS DEPENDED ON SALES OF
ITS SYSTEM CONTROLLERS AND ETHERNET LAN CONTROLLERS FOR A SIGNIFICANT PORTION OF
ITS REVENUES TO DATE. SIGNIFICANT REDUCTIONS IN ORDERS FOR THESE PRODUCTS, OR
THE DEVICES INTO WHICH SUCH PRODUCTS ARE INCORPORATED, WOULD SIGNIFICANTLY
REDUCE OUR REVENUES.
A significant portion of our revenue to date has been derived from sales of
our read channel and preamplifier products. In fiscal 2000 and 2001, we
experienced rapid growth in sales of our read channel and preamplifier products;
however, we anticipate that our sales for these products in fiscal 2002 will be
relatively consistent with the level of sales we reported for these products in
fiscal 2001.
A significant portion of Galileo's revenues to date have come from sales of
system controllers and switched Ethernet LAN controllers, and we expect that a
significant portion of their revenues will continue to come from these products.
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Unless we are able to diversify our sales through increased sales of our
existing broadband communications products and the introduction of new storage
and broadband communications products, we will continue to be dependent on sales
of our read channel and preamplifier products and on Galileo's system
controllers and switched Ethernet LAN controllers. Our read channel and
preamplifier products are incorporated into storage devices by our customers
primarily for sale to the personal computer and computer server markets. Any
reduction in the demand for storage devices that incorporate our products would
likely result in reduced demand for our products and would harm our sales. The
storage market is rapidly evolving and is subject to substantial fluctuation.
For example, the storage market may be affected by:
- shifts in market share among storage device manufacturers, driven by
technological advances, price reductions, the level of end-user
satisfaction with the storage devices and the level of support provided
to the end-users; and
- fluctuations in the market for computing devices and products containing
storage devices.
WE DEPEND ON A SMALL NUMBER OF LARGE CUSTOMERS FOR A SUBSTANTIAL MAJORITY OF OUR
SALES. THE LOSS OF, OR A SIGNIFICANT REDUCTION OR CANCELLATION IN SALES TO, ANY
KEY CUSTOMER WOULD SIGNIFICANTLY REDUCE OUR REVENUES.
In fiscal 2001, our five largest customers accounted for approximately 84%
of our sales. Of these customers, Samsung accounted for 34%, Seagate for 22%,
Fujitsu for 11%, Toshiba for 9% and Hitachi for 8%. Sales to these large
customers have fluctuated significantly from period to period, primarily due to
the timing and number of design wins with each customer, and will likely
continue to fluctuate dramatically in the future. The loss of any of our largest
customers, or a significant reduction in sales we make to them, or any problems
we encounter collecting amounts from them, would likely seriously harm our
results of operations and financial condition. Our operating results in the
foreseeable future will continue to depend on sales to a relatively small number
of customers, as well as the ability of these customers to sell products that
incorporate our products. In the future, these customers may decide not to
purchase our products at all, to purchase fewer products than they did in the
past, or to alter their purchasing patterns in some other way, particularly
because:
- we do not have any long-term purchase arrangements or contracts with
these or any of our other customers or exclusive arrangements with any
customers;
- substantially all of our sales are made on a purchase order basis, which
permits our customers to cancel, change or delay product purchase
commitments with little or no notice to us and without penalty; and
- our customers purchase integrated circuits from our competitors.
Our customers may also discontinue sales in the markets for which they
purchase our products.
IF WE ARE UNABLE TO DEVELOP NEW AND ENHANCED PRODUCTS THAT ACHIEVE MARKET
ACCEPTANCE IN A TIMELY MANNER, OUR OPERATING RESULTS AND COMPETITIVE POSITION
WILL BE HARMED.
Our future success will depend on our ability, in a timely and
cost-effective manner, to develop new products for the broadband communications
markets and to introduce product enhancements to our read channel and
preamplifier products. We must also achieve market acceptance for these products
and enhancements. If we do not successfully develop and achieve market
acceptance for new and enhanced products, our ability to maintain or increase
revenues will suffer. The development of our products is highly complex. We
occasionally have experienced delays in completing the development and
introduction of new products and product enhancements, and we could experience
delays in the future. In particular, we have a limited history in developing
products for the broadband communications market and may encounter technical
difficulties in developing 10 Gigabit Ethernet fiber-optic or other products for
this market that could prevent or delay the successful introduction of these
products. Unanticipated problems in developing broadband communications products
could also divert substantial engineering resources, which may impair our
ability to develop new products and enhancements for the storage market, and
could substantially increase our costs. Even if the new and enhanced products
are introduced to the market, we may not be able to achieve market acceptance of
these products in a timely manner.
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Successful product development and market acceptance of our products
depends on a number of factors, including:
- timely and cost-effective completion and introduction of new product
designs;
- adoption of our products by customers that are among the first to adopt
new technologies and by customers perceived to be market leaders;
- timely qualification and certification of our products for use in our
customers' products;
- the level of acceptance of our products by existing and potential
customers;
- cost and availability of foundry, assembly and testing capacity;
- availability, price, performance, power, use and size of our products and
competing products and technologies;
- our customer service and support capabilities and responsiveness;
- successful development of our relationships with existing and potential
customers and strategic partners; and
- our ability to predict and respond to changes in technology, industry
standards or end-user preferences.
WE MAY NOT SUCCESSFULLY COMPLETE THE INTEGRATION OF OUR BUSINESS OPERATIONS WITH
THOSE OF GALILEO, WHICH COULD HARM OUR OPERATING RESULTS AND SHARE PRICE.
Integrating the operations of Galileo with ours is a difficult, time
consuming and costly task. While we have begun the process of integrating
several of our operations with those of Galileo, the completion of that
integration may distract management from our day-to-day business. We must
successfully integrate, among other things:
- product offerings;
- product development, sales and marketing;
- customer service functions;
- human resources and other administrative functions;
- research and development; and
- management information systems.
Among the challenges in integrating the companies is demonstrating to our
respective customers that the acquisition has not and will not result in an
adverse change in business focus and persuading each company's personnel that
each company's business cultures are compatible. In addition, Galileo operates
in some locations in which we did not otherwise operate. Therefore, to
successfully integrate Galileo's operations, we will need to retain management,
key employees and business partners of Galileo. If we are not able to
effectively complete the integration of our operations, technology and personnel
in a timely and efficient manner, then we will not realize the benefits we
expected from the acquisition. In particular, if the integration is not
successful:
- our operating results may be harmed;
- we may lose key personnel;
- we may not be able to retain or expand our market position; and
- the market price of our common stock may decline.
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GALILEO IS INCORPORATED UNDER THE LAWS OF, AND ITS PRINCIPAL OFFICES ARE LOCATED
IN, THE STATE OF ISRAEL AND THEREFORE ITS BUSINESS OPERATIONS MAY BE HARMED BY
ADVERSE POLITICAL, ECONOMIC AND MILITARY CONDITIONS AFFECTING ISRAEL.
Galileo is both incorporated under the laws of and has its principal
offices in the State of Israel. In addition, Galileo maintains its research and
development operations in Israel. Thus, Galileo is directly influenced by the
political, economic and military conditions affecting Israel. Any major
hostilities involving or within Israel could disrupt Galileo's research and
development and other business operations. For example, continued hostilities
between Israel and the Palestinian Authority in recent months caused substantial
political unrest, which could lead to a potential economic downturn in Israel.
Also, the interruption or curtailment of trade between Israel and its present
trading partners or a significant downturn in the economic or financial
condition of Israel could reduce Galileo's sales and its financial results. A
number of countries restrict business with Israel or Israeli companies, and if
the countries in which Galileo's customers or potential customers conduct their
businesses adopt restrictive laws or policies toward Israel or Israeli
businesses this could harm Galileo's ability to retain or increase its sales.
WE ARE A RELATIVELY SMALL COMPANY WITH LIMITED RESOURCES COMPARED TO SOME OF OUR
CURRENT AND POTENTIAL COMPETITORS, AND WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY
AND INCREASE OR MAINTAIN REVENUES AND MARKET SHARE.
We may not be able to compete successfully against current or potential
competitors. If we do not compete successfully, our market share and revenues
may not increase or may decline. In addition, most of our current and potential
competitors have longer operating histories, significantly greater resources and
name recognition and a larger base of customers than us. As a result, these
competitors may have greater credibility with our existing and potential
customers. Moreover, our competitors may foresee the course of market
developments more accurately than us. They also may be able to adopt more
aggressive pricing policies and devote greater resources to the development,
promotion and sale of their products than us, which would allow them to respond
more quickly than us to new or emerging technologies or changes in customer
requirements. In addition, new competitors or alliances among existing
competitors could emerge. We expect to face competition in the future from our
current competitors, other manufacturers and designers of integrated circuits,
and innovative start-up integrated circuit design companies. Many of our
customers are also large, established integrated circuit suppliers. Our sales to
and support of such customers may enable them to become a source of competition
to us, despite our efforts to protect our intellectual property rights.
As we have entered the broadband communications market, we have faced
competition from a number of additional competitors who have a longer history of
serving that market. Many of these competitors have established reputations in
that market and long-standing relationships with the customers to whom we intend
to sell our products that could prevent us from competing successfully.
Competition could increase pressure on us to lower our prices and lower our
margins.
DUE TO OUR LIMITED OPERATING HISTORY, WE MAY HAVE DIFFICULTY IN ACCURATELY
PREDICTING OUR FUTURE SALES AND APPROPRIATELY BUDGETING FOR OUR EXPENSES, AND WE
MAY NOT BE ABLE TO MAINTAIN OUR EXISTING GROWTH RATE.
We were incorporated in 1995 and did not begin generating any meaningful
sales until June 1998. This limited operating experience, combined with the
rapidly changing nature of the markets in which we sell our products, limits our
ability to accurately forecast quarterly or annual sales. Additionally, because
many of our expenses are fixed in the short term or incurred in advance of
anticipated sales, we may not be able to decrease our expenses in a timely
manner to offset any shortfall of sales. We are currently expanding our staffing
and increasing our expense levels in anticipation of future sales growth. If our
sales do not increase as anticipated, significant losses could result due to our
higher expense levels.
Although we have experienced sales and earnings growth in prior quarterly
and annual periods, we may not be able to sustain these growth rates,
particularly in the period of economic slowdown we are currently experiencing.
Accordingly, you should not rely on the results of any prior quarterly or annual
periods as an indication of our future performance.
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BECAUSE WE DO NOT HAVE LONG-TERM COMMITMENTS FROM OUR CUSTOMERS, WE MUST
ESTIMATE CUSTOMER DEMAND, AND ERRORS IN OUR ESTIMATES CAN HAVE NEGATIVE EFFECTS
ON OUR INVENTORY LEVELS AND SALES.
Our sales are made on the basis of individual purchase orders rather than
long-term purchase commitments. In addition, our customers may cancel or defer
purchase orders. We have historically placed firm orders for products with our
suppliers up to 16 weeks prior to the anticipated delivery date and typically
prior to receiving an order for the product. Therefore, our order volumes are
based on our forecasts of demand from our customers. This process requires us to
make multiple demand forecast assumptions, each of which may introduce error
into our estimates. If we overestimate customer demand, we may allocate
resources to manufacturing products that we may not be able to sell when we
expect or at all. As a result, we would have excess inventory, which would harm
our financial results. Conversely, if we underestimate customer demand or if
insufficient manufacturing capacity is available, we would forego revenue
opportunities, lose market share and damage our customer relationships. On
occasion, we have been unable to adequately respond to unexpected increases in
customer purchase orders, and therefore, were unable to benefit from this
increased demand.
WE RELY ON INDEPENDENT FOUNDRIES AND SUBCONTRACTORS FOR THE MANUFACTURE,
ASSEMBLY AND TESTING OF OUR INTEGRATED CIRCUIT PRODUCTS, AND THE FAILURE OF ANY
OF THESE THIRD-PARTY VENDORS TO DELIVER PRODUCTS OR OTHERWISE PERFORM AS
REQUESTED COULD DAMAGE OUR RELATIONSHIPS WITH OUR CUSTOMERS, DECREASE OUR SALES
AND LIMIT OUR GROWTH.
We do not have our own manufacturing, assembly or testing facilities.
Therefore, we must rely on third-party vendors to manufacture, assemble and test
the products we design. We currently rely on Taiwan Semiconductor Manufacturing
Company to produce substantially all of our integrated circuit products. We also
currently rely on Taiwan Semiconductor and other third-party assembly and test
subcontractors to assemble, package and test our products. If these vendors do
not provide us with high quality products and services in a timely manner, or if
one or more of these vendors terminates its relationship with us, we may be
unable to obtain satisfactory replacements to fulfill customer orders on a
timely basis, our relationships with our customers could suffer, our sales could
decrease and our growth could be limited. Other significant risks associated
with relying on these third-party vendors include:
- our customers or their customers may fail to approve or delay approving
our selected supplier;
- we have reduced control over product cost, delivery schedules and product
quality;
- the warranties on wafers or products supplied to us are limited; and
- we face increased exposure to potential misappropriation of our
intellectual property.
We currently do not have long-term supply contracts with any of our
third-party vendors. They therefore are not obligated to perform services or
supply products to us for any specific period, in any specific quantities, or at
any specific price, except as may be provided in a particular purchase order.
None of our third-party foundry or assembly and test subcontractors has provided
contractual assurances to us that adequate capacity will be available to us to
meet future demand for our products. These foundries may allocate capacity to
the production of other companies' products while reducing deliveries to us on
short notice. In particular, foundry customers that are larger and better
financed than us or that have long-term agreements with these foundries may
cause these foundries to reallocate capacity to those customers, decreasing the
capacity available to us. If we need another integrated circuit foundry or
assembly and test contractor because of increased demand or the inability to
obtain timely and adequate deliveries from our providers at the time, we might
not be able to develop relationships with other vendors who are able to satisfy
our requirements. Even if other integrated circuit foundries or assembly and
test contractors are available at that time to satisfy our requirements, it
would likely take several months to acquire a new provider. Such a change may
also require the approval of our customers, which would take time to effect and
could cause our customers to cancel orders or fail to place new orders.
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IF OUR FOUNDRIES DO NOT ACHIEVE SATISFACTORY YIELDS OR QUALITY, OUR
RELATIONSHIPS WITH OUR CUSTOMERS AND OUR REPUTATION WILL BE HARMED.
The fabrication of integrated circuits is a complex and technically
demanding process. Our foundries have from time to time experienced
manufacturing defects and reduced manufacturing yields. In the fourth quarter of
fiscal 2000, we experienced low yields in the production of our newly introduced
read channel product, which decreased our gross profits for that quarter.
Changes in manufacturing processes or the inadvertent use of defective or
contaminated materials by our foundries could result in lower than anticipated
manufacturing yields or unacceptable performance. Many of these problems are
difficult to detect at an early stage of the manufacturing process and may be
time consuming and expensive to correct. Poor yields from our foundries, or
defects, integration issues or other performance problems in our products could
cause us significant customer relations and business reputation problems, harm
our financial results and result in financial or other damages to our customers.
Our customers could also seek damages from us for their losses. A product
liability claim brought against us, even if unsuccessful, would likely be time
consuming and costly to defend. In addition, defects in our existing or new
products could result in significant warranty, support and repair costs, and
divert the attention of our engineering personnel from our product development
efforts.
BECAUSE FOUNDRY CAPACITY IS LIMITED, WE MAY TAKE VARIOUS ACTIONS TO TRY TO
SECURE CAPACITY, WHICH MAY BE COSTLY AND HARM OUR OPERATING RESULTS.
Foundry capacity is limited and competition for capacity is increasing. In
order to secure foundry capacity as competition increases, we may enter into
various arrangements with suppliers that could be costly and harm our operating
results. As competition for foundry space increases, additional arrangements may
be required, including:
- option payments or other prepayments to a foundry;
- nonrefundable deposits with or loans to foundries in exchange for
capacity commitments;
- contracts that commit us to purchase specified quantities of integrated
circuits over extended periods;
- issuance of our equity securities to a foundry;
- investment in a foundry; and
- other partnership relationships with foundries.
We may not be able to make any such arrangement in a timely fashion or at
all, and any arrangements may be costly, reduce our financial flexibility, and
not be on terms favorable to us. Moreover, if we are able to secure foundry
capacity, we may be obligated to use all of that capacity or incur penalties.
These penalties may be expensive and could harm our financial results.
WE DEPEND ON KEY PERSONNEL WITH WHOM WE DO NOT HAVE EMPLOYMENT AGREEMENTS TO
MANAGE OUR BUSINESS, AND IF WE ARE UNABLE TO RETAIN OUR CURRENT PERSONNEL AND
HIRE ADDITIONAL PERSONNEL, OUR ABILITY TO DEVELOP AND SUCCESSFULLY MARKET OUR
PRODUCTS COULD BE HARMED.
We believe our future success will depend in large part upon our ability to
attract and retain highly skilled managerial, engineering and sales and
marketing personnel. The loss of any key employees or the inability to attract
or retain qualified personnel, including engineers and sales and marketing
personnel, could delay the development and introduction of, and harm our ability
to sell, our products. We believe that our future success is highly dependent on
the contributions of Sehat Sutardja, our co-founder, President and Chief
Executive Officer, Pantas Sutardja, our co-founder and Vice-President, and Chief
Technology Officer of Marvell Semiconductor, Weili Dai, our co-founder and
Executive Vice President of the Communications Business Group of Marvell
Semiconductor and Avigdor Willenz, Executive Vice President of the
Communications Business Group of Galileo Technology Ltd. We do not have
employment contracts with these or any other key personnel, and their knowledge
of the business and industry would be extremely difficult to replace.
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There is currently a shortage of qualified technical personnel with
significant experience in the design, development, manufacture, marketing and
sales of integrated circuits for use in communications products. In particular,
there is a shortage of engineers who are familiar with the intricacies of the
design and manufacture of products based on analog technology, and competition
for these engineers is intense. Our key technical personnel represent a
significant asset and serve as the source of our technological and product
innovations. We may not be successful in attracting and retaining sufficient
numbers of technical personnel to support our anticipated growth.
OUR RAPID GROWTH HAS STRAINED OUR RESOURCES AND OUR INABILITY TO MANAGE ANY
FUTURE GROWTH COULD HARM OUR PROFITABILITY.
Our rapid growth has placed, and future growth of our operations will
continue to place, a significant strain on our management personnel, systems and
resources. We anticipate that we will need to implement a variety of new and
upgraded operational and financial systems, procedures and controls, including
the improvement of our accounting and other internal management systems. We also
expect that we will need to continue to expand, train, manage and motivate our
workforce. All of these endeavors will require substantial management effort. If
we are unable to effectively manage our expanding operations, our profitability
could be harmed.
As a result of this growth, we believe that our current facilities will be
inadequate to meet our requirements past fiscal 2002. We expect we will need to
locate additional space in California, and may find it necessary to vacate our
current locations. If we relocate, we may have to pay rent on two leases for a
period of time. Because of the competition for space in the area of California
in which we are located, additional space may cost substantially more than
existing facilities. We may also incur significant additional capital
expenditures for construction of tenant improvements. These relocations could
also result in temporary disruptions of operations and diversion of management's
attention and resources.
WE FACE FOREIGN BUSINESS, POLITICAL AND ECONOMIC RISKS, WHICH MAY HARM OUR
RESULTS OF OPERATIONS, BECAUSE A MAJORITY OF OUR PRODUCTS AND OUR CUSTOMERS'
PRODUCTS ARE MANUFACTURED AND SOLD OUTSIDE OF THE UNITED STATES.
A substantial portion of our business is conducted outside of the United
States and as a result, we are subject to foreign business, political and
economic risks. All of our products are manufactured outside of the United
States. Our current qualified integrated circuit foundries are located in the
same region within Taiwan, and our primary assembly and test subcontractors are
located in the Pacific Rim region. In addition, many of our customers are
located outside of the United States, primarily concentrated in Singapore,
Taiwan and Japan, which further exposes us to foreign risks. Sales outside of
the United States accounted for 92% and 99% of our revenues in fiscal 2001 and
fiscal 2000, respectively. We anticipate that our manufacturing, assembly,
testing and sales outside of the United States will continue to account for a
substantial portion of our operations and revenue in future periods.
Accordingly, we are subject to international risks, including:
- difficulties in obtaining domestic and foreign export, import and other
governmental approvals, permits and licenses;
- compliance with foreign laws;
- difficulties in staffing and managing foreign operations;
- trade restrictions or higher tariffs;
- transportation delays;
- difficulties of managing distributors, especially because we expect to
continue to increase our sales through international distributors;
- political and economic instability, including hostilities and political
unrest, and boycotts, curtailment of trade and other business
restrictions; and
- inadequate local infrastructure.
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Because all of our sales to date have been denominated in United States
dollars, increases in the value of the United States dollar will increase the
price of our products so that they become relatively more expensive to customers
in the local currency of a particular country, potentially leading to a
reduction in sales and profitability for us in that country. A portion of our
international revenue may be denominated in foreign currencies in the future,
which will subject us to risks associated with fluctuations in exchange rates
for those foreign currencies.
THE CURRENT SHORTAGE OF ELECTRICITY IN CALIFORNIA AND THE CORRESPONDING
INCREASES IN PRICES AND ROLLING BLACKOUTS MAY NEGATIVELY AFFECT OUR RESEARCH AND
DEVELOPMENT AND OTHER OPERATIONS.
California has recently suffered a severe shortage of electricity, which
has resulted in one instance in recent months in which we were subjected to a
"rolling blackout." When we are subjected to rolling blackouts, all electricity
to our facilities is cut off and we are unable to use our computers, telephones
and other equipment that is critical to our research and development and other
functions. Some of our customers who have operations in California are also
being negatively affected by the electricity shortage. The predictions for the
summer of calendar year 2001 are for even more severe electricity shortages,
which may result in substantial down time for California businesses. If we are
subjected to a series of rolling blackouts or to a single extended rolling
blackout, our research and development and other operations will be negatively
affected.
OUR THIRD-PARTY FOUNDRIES AND SUBCONTRACTORS ARE CONCENTRATED IN TAIWAN AND
ELSEWHERE IN THE PACIFIC RIM, AN AREA SUBJECT TO SIGNIFICANT EARTHQUAKE RISKS.
ANY DISRUPTION TO THE OPERATIONS OF THESE FOUNDRIES AND SUBCONTRACTORS RESULTING
FROM EARTHQUAKES OR OTHER NATURAL DISASTERS COULD CAUSE SIGNIFICANT DELAYS IN
THE PRODUCTION OR SHIPMENT OF OUR PRODUCTS.
Substantially all of our products are produced by Taiwan Semiconductor
Manufacturing Company located in Taiwan. Currently our only alternative
manufacturing source is also located in Taiwan. In addition, substantially all
of our assembly and testing facilities are located in Singapore, Taiwan and the
Philippines. The risk of an earthquake in Taiwan and elsewhere in the Pacific
Rim region is a significant risk due to the proximity of major earthquake fault
lines to the facilities of our foundries and subcontractors. In September 1999,
a major earthquake in Taiwan affected the facilities of several of these
third-party contractors. As a consequence of this earthquake, these contractors
suffered power outages and disruptions that impaired their production capacity.
The occurrence of an earthquake or other natural disaster could result in the
disruption of our foundry or assembly and test capacity. Any disruption
resulting from such events could cause significant delays in the production or
shipment of our products until we are able to shift our manufacturing,
assembling or testing from the affected contractor to another third-party
vendor. We may not be able to obtain alternate capacity on favorable terms, if
at all.
WE RELY ON THIRD-PARTY DISTRIBUTORS AND THE FAILURE OF THESE DISTRIBUTORS TO
PERFORM AS EXPECTED COULD REDUCE OUR FUTURE SALES.
We sell our communications products to customers primarily through
distributors and manufacturers' representatives. Our relationships with our
distributors and manufacturers' representatives have been established within the
last year, and we are unable to predict the extent to which some of these
distributors and manufacturers' representatives will be successful in marketing
and selling our products. Moreover, many of our manufacturers' representatives
and distributors also market and sell competing products. Our representatives
and distributors may terminate their relationships with us at any time. Our
future performance will also depend, in part, on our ability to attract
additional distributors or manufacturers' representatives that will be able to
market and support our products effectively, especially in markets in which we
have not previously distributed our products. If we cannot retain our current
distributors or manufacturers' representatives or recruit additional or
replacement distributors or manufacturers' representatives, our sales and
operating results will be harmed. The loss of one or more of our distributors or
manufacturers' representatives could harm our sales and results of operations.
We generally realize a higher gross margin on direct sales and from sales
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through manufacturers' representatives than on sales through distributors.
Accordingly, if our distributors were to account for an increased portion of our
net sales, our gross margins would decline.
PRODUCTS THAT CONTAIN ERRORS OR DEFECTS COULD RESULT IN SIGNIFICANT COSTS FOR US
AND HARM OUR REPUTATION.
Our products are complex. Despite demanding testing and quality control, we
cannot be certain that errors and defects will not be found in connection with
the introduction of our products or product enhancements.
We have experienced errors and defects in the past in connection with new
products. Introductions by us of new or enhanced products with reliability,
quality or compatibility problems could significantly delay or hinder market
acceptance of such products, and could adversely affect our ability to retain
our existing customers and to attract new customers. Alleviating these problems
could require significant expenditures of capital and additional development
costs, and diversion of technical and other resources by us.
These problems may also result in claims by our customers or others against
us.
OUR FUTURE ACQUISITIONS AND TRANSACTIONS MAY NOT BE SUCCESSFUL.
We expect to continue to make acquisitions of, and investments in,
businesses that offer complementary products, services and technologies, augment
our market segment coverage, or enhance our technological capabilities. We may
also enter into strategic alliances or joint ventures to achieve these goals. We
cannot assure you that we will be able to identify suitable acquisition,
investment, alliance, or joint venture opportunities or that we will be able to
consummate any such transactions or relationships on terms and conditions
acceptable to us, or that such transactions or relationships will be successful.
Any transactions or relationships will be accompanied by the risks commonly
encountered with those matters. Risks that could have a material adverse affect
on our business, results of operations or financial condition include, among
other things:
- the difficulty of assimilating the operations and personnel of the
acquired businesses;
- the potential disruption of our ongoing business;
- the distraction of management from our business;
- the potential inability of management to maximize the financial and
strategic position of us as a result of the acquisition;
- the potential difficulty maintaining uniform standards, controls,
procedures and policies;
- the impairment of relationships with employees and clients as a result of
any integration of new management personnel;
- the risk of entering market segments in which we have no or limited
direct prior experience and where competitors in such market segments
have stronger market segment positions; and
- the potential loss of key employees of an acquired company.
THE AVERAGE SELLING PRICES OF PRODUCTS IN OUR MARKETS HAVE HISTORICALLY
DECREASED RAPIDLY AND WILL LIKELY DO SO IN THE FUTURE, WHICH COULD HARM OUR
GROSS PROFITS AND SALES.
The products we develop and sell are used for high volume applications. As
a result, the prices of those products have historically decreased rapidly. Our
gross profits and financial results will suffer if we are unable to offset any
reductions in our average selling prices by increasing our sales volumes,
reducing our costs, or developing new or enhanced products on a timely basis
with higher selling prices or gross profits. We expect that, as a result of
pricing pressure from our customers, our gross profits on our storage products
are also likely to decrease over the next fiscal year below levels we have
historically experienced. Because we do not operate our own manufacturing,
assembly or testing facilities, we may not be able to reduce our costs as
rapidly as companies that operate their own facilities, and our costs may even
increase. In the past, we have reduced the
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average unit price of our products in anticipation of future competitive pricing
pressures, new product introductions by us or our competitors and other factors.
We expect that we will have to do so again in the future.
WE HAVE A LENGTHY AND EXPENSIVE SALES CYCLE, WHICH DOES NOT ASSURE PRODUCT
SALES, AND WHICH IF UNSUCCESSFUL MAY HARM OUR OPERATING RESULTS.
The sales cycle for our products is long and requires us to invest
significant resources with each potential customer without any assurance of
sales to that customer. Our sales cycle typically begins with a three to six
month evaluation and test period, also known as qualification, during which our
products undergo rigorous reliability testing by our customers.
Qualification is followed by a 12 to 18 month development period by our
customers and an additional three to six month period before a customer
commences volume production of equipment incorporating our products. This
lengthy sales cycle creates the risk that our customers will decide to cancel or
change product plans for products incorporating our integrated circuits. During
our sales cycle, our engineers assist customers in implementing our products
into the customers' products. We incur significant research and development and
selling, general and administrative expenses as part of this process, and this
process may never generate related revenues. We derive revenue from this process
only if our design is selected. Once a customer selects a particular integrated
circuit for use in a storage product, the customer generally uses solely that
integrated circuit for a full generation of its product. Therefore, if we do not
achieve a design win for a product, we will be unable to sell our integrated
circuit to a customer until that customer develops a new product or a new
generation of its product. Even if we achieve a design win with a customer, the
customer may not ultimately ship products incorporating our products or may
cancel orders after we have achieved a sale. In addition, we will have to begin
the qualification process again when a customer develops a new generation of a
product for which we were the successful supplier.
Also, during the final production of a mature product, our customers
typically exhaust their existing inventory of our integrated circuits.
Consequently, orders for our products may decline in those circumstances, even
if our products are incorporated into both our customers' mature and replacement
products. A delay in a customer's transition to commercial production of a
replacement product may cause the customer to lose sales, which would delay our
ability to recover the lost sales from the discontinued mature product. In
addition, customers may defer orders in anticipation of new products or product
enhancements from us or our competitors.
WE ARE SUBJECT TO THE CYCLICAL NATURE OF THE INTEGRATED CIRCUIT INDUSTRY. THE
CURRENT AND ANY FUTURE DOWNTURNS WILL LIKELY REDUCE OUR REVENUE AND RESULT IN
EXCESS INVENTORY.
The integrated circuit industry is highly cyclical and is characterized by
constant and rapid technological change, rapid product obsolescence and price
erosion, evolving standards, short product life cycles and wide fluctuations in
product supply and demand. The industry has experienced, and is currently
experiencing, significant downturns, often connected with, or in anticipation
of, maturing product cycles of both integrated circuit companies' and their
customers' products and declines in general economic conditions. These downturns
have been characterized by diminished product demand, production overcapacity,
high inventory levels and accelerated erosion of average selling prices. The
current downturn and any future downturns will likely reduce our revenue or our
percentage of revenue growth on a quarter-to-quarter basis and result in us
having excess inventory.
Furthermore, any upturn in the integrated circuit industry could result in
increased competition for access to third-party foundry, assembly and test
capacity.
WE ARE DEPENDENT UPON THE HARD DISK DRIVE INDUSTRY, WHICH IS HIGHLY CYCLICAL AND
EXPERIENCES RAPID TECHNOLOGICAL CHANGE.
Prior to March 2000, all of our sales were to customers in the hard disk
drive industry. The hard disk drive industry is intensely competitive and the
technology changes rapidly. As a result, this industry is highly
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cyclical, with periods of increased demand and rapid growth followed by periods
of oversupply and subsequent contraction. These cycles may affect us as our
customers are suppliers to this industry. Hard disk drive manufacturers tend to
order more components than they may need during growth periods, and sharply
reduce orders for components during periods of contraction. In addition,
advances in existing technologies and the introduction of new technologies may
result in lower demand for disk drive storage devices, thereby reducing demand
for our products.
Rapid technological changes in the hard disk drive industry often result in
significant and rapid shifts in market share among the industry's participants.
If the hard disk drive manufacturers supplied by our customers do not retain or
increase market share, our sales may decrease.
THE DEVELOPMENT AND EVOLUTION OF MARKETS FOR OUR INTEGRATED CIRCUITS ARE
DEPENDENT ON FACTORS, SUCH AS INDUSTRY STANDARDS, OVER WHICH WE HAVE NO CONTROL.
FOR EXAMPLE, IF OUR CUSTOMERS ADOPT NEW OR COMPETING INDUSTRY STANDARDS WITH
WHICH OUR PRODUCTS ARE NOT COMPATIBLE OR FAIL TO ADOPT STANDARDS WITH WHICH OUR
PRODUCTS ARE COMPATIBLE, OUR EXISTING PRODUCTS WOULD BECOME LESS DESIRABLE TO
OUR CUSTOMERS AND OUR SALES WOULD SUFFER.
The emergence of markets for our integrated circuits is affected by a
variety of factors beyond our control. In particular, our products are designed
to conform to current specific industry standards. Our customers may not adopt
or continue to follow these standards, which would make our products less
desirable to our customers and reduce our sales. Also, competing standards may
emerge that are preferred by our customers, which could also reduce our sales
and require us to make significant expenditures to develop new products.
We have made a significant investment in the development and production of
our Gigabit Ethernet products. However, the Gigabit Ethernet technology is
relatively new compared to the more established 10 and 100 megabits per second
Fast Ethernet technologies. If the Gigabit Ethernet technology does not achieve
widespread market acceptance, our Gigabit Ethernet products may never be
profitable.
WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY, WHICH WOULD NEGATIVELY
AFFECT OUR ABILITY TO COMPETE.
We believe one of our key competitive advantages results from our
collection of proprietary technologies that we have developed since our
inception. If we fail to protect these intellectual property rights, competitors
could sell products based on technology that we have developed, which could harm
our competitive position and decrease our revenues. We believe that the
protection of our intellectual property rights is and will continue to be
important to the success of our business. We rely on a combination of patent,
copyright, trademark and trade secret laws, as well as nondisclosure agreements
and other methods, to protect our proprietary technologies. We also enter into
confidentiality or license agreements with our employees, consultants and
business partners, and control access to and distribution of our documentation
and other proprietary information. As of March 31, 2001, we have been issued 19
United States patents and had a number of pending United States patent
applications. However, a patent may not be issued as a result of any
applications or, if issued, claims allowed may not be sufficiently broad to
protect our technology. In addition, it is possible that existing or future
patents may be challenged, invalidated or circumvented. Despite our efforts,
unauthorized parties may attempt to copy or otherwise obtain and use our
products or proprietary technology. Monitoring unauthorized use of our
technology is difficult, and the steps that we have taken may not prevent
unauthorized use of our technology, particularly in foreign countries where the
laws may not protect our proprietary rights as fully as in the United States.
SIGNIFICANT LITIGATION OVER INTELLECTUAL PROPERTY IN OUR INDUSTRY MAY CAUSE US
TO BECOME INVOLVED IN COSTLY AND LENGTHY LITIGATION, WHICH COULD SUBJECT US TO
LIABILITY, REQUIRE US TO STOP SELLING OUR PRODUCTS OR FORCE US TO REDESIGN OUR
PRODUCTS.
Litigation involving patents and other intellectual property is widespread
in the high-technology industry and is particularly prevalent in the integrated
circuit industry, where a number of companies aggressively bring numerous
infringement claims to protect their patent portfolios. We may become a party to
litigation in the future either to protect our intellectual property or as a
result of an alleged infringement of others' intellectual property. These
lawsuits could subject us to significant liability for damages and invalidate
our proprietary
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rights. These lawsuits, regardless of their success, would likely be
time-consuming and expensive to resolve and would divert management time and
attention. Any potential intellectual property litigation also could force us to
do one or more of the following:
- stop selling products or using technology that contain the allegedly
infringing intellectual property;
- pay damages to the party claiming infringement;
- attempt to obtain a license to the relevant intellectual property, which
license may not be available on reasonable terms or at all; and
- attempt to redesign those products that contain the allegedly infringing
intellectual property.
WE ARE INCORPORATED IN BERMUDA, AND, AS A RESULT, IT MAY NOT BE POSSIBLE FOR OUR
SHAREHOLDERS TO ENFORCE CIVIL LIABILITY PROVISIONS OF THE SECURITIES LAWS OF THE
UNITED STATES.
We are organized under the laws of Bermuda. As a result, it may not be
possible for our shareholders to effect service of process within the United
States upon us, or to enforce against us in United States courts judgments based
on the civil liability provisions of the securities laws of the United States.
Most of our executive officers and directors are residents of the United States.
However, there is significant doubt as to whether the courts of Bermuda would
recognize or enforce judgments of United States courts obtained against us or
our directors or officers based on the civil liability provisions of the
securities laws of the United States or any state or hear actions brought in
Bermuda against us or those persons based on those laws. The United States and
Bermuda do not currently have a treaty providing for the reciprocal recognition
and enforcement of judgments in civil and commercial matters. Therefore, a final
judgment for the payment of money rendered by any federal or state court in the
United States based on civil liability, whether or not based solely on United
States federal or state securities laws, would not be automatically enforceable
in Bermuda.
OUR BYE-LAWS CONTAIN A WAIVER OF CLAIMS OR RIGHTS OF ACTION BY OUR SHAREHOLDERS
AGAINST OUR OFFICERS AND DIRECTORS, WHICH WILL SEVERELY LIMIT OUR SHAREHOLDERS'
RIGHT TO ASSERT A CLAIM AGAINST OUR OFFICERS AND DIRECTORS UNDER BERMUDA LAW.
Our Bye-laws contain a broad waiver by our shareholders of any claim or
right of action, both individually and on our behalf, against any of our
officers and directors. The waiver applies to any action taken by an officer or
director, or the failure of an officer or director to take any action, in the
performance of his or her duties with or for us, other than with respect to any
matter involving any fraud or dishonesty on the part of the officer or director.
This waiver will limit the rights of our shareholders to assert claims against
our officers and directors unless the act complained of involves actual fraud or
dishonesty. Thus, so long as acts of business judgment do not involve actual
fraud or dishonesty, they will not be subject to shareholder claims under
Bermuda law. For example, shareholders will not have claims against officers and
directors for a breach of trust, unless the breach rises to the level of actual
fraud or dishonesty.
WE ARE SUBJECT TO UNCERTAINTY CONCERNING OUR TAX SITUATION.
As a Bermuda corporation, we are subject to United States federal income
tax at regular corporate rates and to United States branch profits tax, in each
case to the extent that our income is effectively connected with the conduct of
a trade or business in the United States. The determination of whether income of
a foreign corporation is effectively connected with the conduct of a trade or
business in the United States and, therefore, is subject to United States tax,
involves a consideration of all the facts and circumstances and the application
of legal standards that are uncertain. There have been few court cases or
rulings by the Internal Revenue Service addressing the application of these
legal standards, and we believe that none of these cases or rulings relate to
facts precisely like ours. Our position is that our business operations do not
generate any income effectively connected with a United States trade or
business. Because of the uncertainty as to how United States federal income tax
laws apply to the way we conduct our business, we believe the Internal Revenue
Service will probably disagree with our past or future positions as to the
amount of effectively connected income that we earn. Therefore, if our positions
are disallowed, the amount we have accrued on our financial
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statements for United States federal income taxes may be insufficient to the
extent of the difference between the income tax rate ultimately determined to
apply and the tax rate that we have used to accrue for income taxes in our
financial statements. In addition, we could be required to make significant cash
payments for back taxes and interest based on the difference between the income
tax rate ultimately determined to apply and the effective rate at which we paid
those taxes.
TAX BENEFITS WE RECEIVE MAY BE TERMINATED OR REDUCED IN THE FUTURE, WHICH WOULD
INCREASE OUR COSTS.
Under current Bermuda law, we are not subject to tax on our income or
capital gains. We have obtained from the Minister of Finance of Bermuda under
the Exempt Undertakings Tax Protection Act 1966, as amended, an undertaking
that, in the event that Bermuda enacts any legislation imposing tax computed on
income or capital gains, those taxes should not apply to us until March 28,
2016. However, this exemption may not be extended beyond that date.
The Economic Development Board of Singapore granted Pioneer Status to our
wholly-owned subsidiary in Singapore in July 2000 for a period of at least six
years, commencing July 1, 1999. As a result, we anticipate that a significant
portion of the income we earn in Singapore during this period will be exempt
from the 26% Singapore tax rate. We are required to meet several requirements as
to investment, headcount and activities in Singapore to retain this status. If
our Pioneer Status is terminated early, our financial results could be harmed.
The Israeli government has granted Approved Enterprise Status to our
wholly-owned subsidiary in Israel, which provides for a tax holiday on
undistributed Israeli income. We expect that we will start paying some income
tax in Israel beginning in 2004. In order to maintain our qualification, we must
continue to meet specified conditions, including the making of investments in
fixed assets in Israel.
IF WE ARE CLASSIFIED AS A PASSIVE FOREIGN INVESTMENT COMPANY, OUR SHAREHOLDERS
MAY SUFFER ADVERSE TAX CONSEQUENCES.
Because we are incorporated in Bermuda and have operations in the United
States, Israel and Singapore, we are subject to special rules and regulations,
including rules regarding a passive foreign investment company, or PFIC. We
believe that we are not a PFIC, and we expect to continue to manage our affairs
so that we will not become a PFIC. However, whether we should be treated as a
PFIC is a factual determination that is made annually and is subject to change.
If we are classified as a PFIC, then each United States holder of our common
stock would, upon qualifying distributions by us or upon the pledge or sale of
their shares of common stock at a gain, be liable to pay tax at the then
prevailing rates on ordinary income plus an interest charge, generally as if the
distribution or gain had been earned ratably over the shareholder's holding
period. In addition to the risks related to PFIC status, we and our shareholders
could also suffer adverse tax consequences if we are classified as a foreign
personal holding company, a personal holding company or a controlled foreign
corporation.
OUR OFFICERS AND DIRECTORS OWN A LARGE PERCENTAGE OF OUR VOTING STOCK, AND THREE
EXISTING DIRECTORS, WHO ARE ALSO SIGNIFICANT SHAREHOLDERS, ARE RELATED BY BLOOD
OR MARRIAGE. THESE FACTORS MAY ALLOW THE OFFICERS AND DIRECTORS AS A GROUP OR
THE THREE RELATED DIRECTORS TO CONTROL THE ELECTION OF DIRECTORS AND THE
APPROVAL OR DISAPPROVAL OF SIGNIFICANT CORPORATE ACTIONS.
As of March 31, 2001, our executive officers and directors beneficially
owned or controlled, directly or indirectly, approximately 52% of the
outstanding shares our common stock. Additionally, Sehat Sutardja and Weili Dai
are husband and wife and Sehat Sutardja and Pantas Sutardja are brothers. All
three are directors and together they held approximately 31% of our outstanding
common stock as of March 31, 2001. As a result, if the directors and officers as
a group or any of Sehat Sutardja, Pantas Sutardja and Weili Dai act together,
they will significantly influence, and will likely control, the election of our
directors and approval or disapproval of our significant corporate actions. This
influence over our affairs might be adverse to the interests of other
shareholders. In addition, the voting power of these officers or directors could
have the effect of delaying or preventing an acquisition of us on terms that
other shareholders may desire.
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Under Bermuda law all of our officers, in exercising their powers and
discharging their duties, must act honestly and in good faith with a view to our
best interests and exercise the care, diligence and skill that a reasonably
prudent person would exercise in comparable circumstances. Majority shareholders
do not owe fiduciary duties to minority shareholders. As a result, the minority
shareholders will not have a direct claim against the majority shareholders in
the event the majority shareholders take actions that damage the interests of
minority shareholders. Class actions and derivative actions are generally not
available to shareholders under the laws of Bermuda, except the Bermuda courts
would be expected to follow English case law precedent, which would permit a
shareholder to bring an action in our name if the directors or officers are
alleged to be acting beyond our corporate power, committing illegal acts or
violating our Memorandum of Association or Bye-laws. In addition, minority
shareholders would be able to challenge a corporate action that allegedly
constituted a fraud against them or required the approval of a greater
percentage of our shareholders than actually approved it. The winning party in
such an action generally would be able to recover a portion of attorneys' fees
incurred in connection with the action.
CLASS ACTION LITIGATION DUE TO STOCK PRICE VOLATILITY COULD CAUSE US TO INCUR
SUBSTANTIAL COSTS AND DIVERT OUR MANAGEMENT'S ATTENTION AND RESOURCES.
In the past, securities class action litigation often has been brought
against a company following periods of volatility in the market price of its
securities. Companies in the integrated circuit industry and other technology
industries are particularly vulnerable to this kind of litigation due to the
high volatility of their stock prices. Accordingly, we may in the future be the
target of securities litigation. Securities litigation could result in
substantial costs and could divert the attention and resources of our
management.
FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET MAY DEPRESS OUR STOCK
PRICE.
Future sales of a substantial number of shares of our common stock in the
public market could cause our stock price to decline. As of March 31, 2001, we
had 115,373,385 shares of common stock outstanding. None of these shares are
currently subject to any underwriter's lock-up agreements. The market price of
our stock could drop significantly if the holders of these shares sell them or
are perceived by the market as intending to sell them. In addition, the sale of
these shares could impair our ability to raise capital through the sale of
additional stock.
OUR BYE-LAWS CONTAIN PROVISIONS THAT COULD DELAY OR PREVENT A CHANGE IN
CORPORATE CONTROL, EVEN IF THE CHANGE IN CORPORATE CONTROL WOULD BENEFIT OUR
SHAREHOLDERS.
Our Bye-laws contain change in corporate control provisions which include:
- authorizing the issuance of preferred stock without shareholder approval;
- providing for a classified board of directors with staggered, three-year
terms; and
- requiring two-thirds of the outstanding shares to approve amendments to
our Bye-laws.
These change in corporate control provisions could make it more difficult
for a third-party to acquire us, even if doing so would be a benefit to our
shareholders.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Interest Rate Risk. Our cash equivalents and short-term investments are
exposed to financial market risk due to fluctuations in interest rates, which
may affect our interest income. As of January 31, 2001, our cash equivalents and
short-term investments consisted of money market securities; corporate debt
securities; State, county and municipal debt securities; and foreign government
securities. Due to the short-term nature of our investment portfolio, we would
not expect our operating results or cash flows to be affected to any significant
degree by the effect of a sudden change in market interest rates. We do not use
our investment portfolio for trading or other speculative purposes.
Foreign Currency Exchange Risk. All of our sales and the majority of our
expenses to date have been denominated in U.S. dollars, and, as a result, we
have relatively little exposure to foreign currency exchange risk. We do not
currently enter into forward exchange contracts to hedge exposures denominated
in foreign currencies or any other derivative financial instruments for trading
or speculative purposes. However, in the event our exposure to foreign currency
risk increases, we may choose to hedge those exposures in the future.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of Independent Accountants........................... 54
Consolidated Balance Sheets................................. 55
Consolidated Statements of Operations....................... 56
Consolidated Statements of Shareholders' Equity (Deficit)... 57
Consolidated Statements of Cash Flows....................... 58
Notes to Consolidated Financial Statements.................. 59
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
Marvell Technology Group Ltd.:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of shareholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Marvell Technology Group Ltd. and its subsidiaries (the "Company") as of January
31, 2001 and 2000, and the results of its operations and its cash flows for the
three years in the period ended January 31, 2001, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Jose, California
February 22, 2001
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MARVELL TECHNOLOGY GROUP LTD.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
JANUARY 31,
---------------------
2001 2000
---------- -------
Current assets:
Cash and cash equivalents................................. $ 184,128 $16,600
Short-term investments.................................... 39,935 --
Accounts receivable, net of allowances of $1,218 and $100,
respectively........................................... 37,543 14,701
Inventory, net............................................ 30,924 4,830
Prepaid expenses and other current assets................. 7,717 1,195
Deferred income taxes..................................... 3,762 1,456
---------- -------
Total current assets.............................. 304,009 38,782
Property and equipment, net................................. 31,184 7,413
Goodwill and acquired intangible assets..................... 2,100,839 --
Other noncurrent assets..................................... 11,454 305
---------- -------
Total assets...................................... $2,447,486 $46,500
========== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 24,818 $ 5,698
Accrued liabilities....................................... 9,521 3,050
Accrued employee compensation............................. 7,802 1,474
Accrued merger costs...................................... 29,530 --
Income taxes payable...................................... 9,998 5,875
Deferred revenue.......................................... 6,516 --
Capital lease obligations................................. 37 74
---------- -------
Total current liabilities......................... 88,222 16,171
Long-term liabilities..................................... 2,598 36
---------- -------
Total liabilities................................. 90,820 16,207
========== =======
Commitments (Note 10)
Mandatorily redeemable convertible preferred stock, $0.002
par value; 8,000,000 shares authorized; zero and 6,609,875
shares issued and outstanding, respectively............... -- 22,353
Shareholders' equity:
Common stock, $0.002 par value; 242,000,000 shares
authorized; 115,337,133 and 48,931,560 shares issued
and outstanding, respectively.......................... 231 98
Additional paid-in capital................................ 2,617,490 17,580
Deferred stock-based compensation......................... (28,113) (11,897)
Accumulated other comprehensive income.................... 19 --
Retained earnings (deficit)............................... (232,961) 2,159
---------- -------
Total shareholders' equity........................ 2,356,666 7,940
---------- -------
Total liabilities and shareholders' equity........ $2,447,486 $46,500
========== =======
The accompanying notes are an integral part of these Consolidated Financial
Statements.
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MARVELL TECHNOLOGY GROUP LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED JANUARY 31,
-------------------------------
2001 2000 1999
--------- ------- -------
Net revenue................................................. $ 143,894 $81,375 $21,253
Costs and expenses:
Cost of goods sold(1)..................................... 67,047 33,773 10,103
Research and development(2)............................... 35,152 14,452 5,837
Selling and marketing(3).................................. 21,686 10,436 4,631
General and administrative(4)............................. 6,185 3,443 1,190
Amortization of stock-based compensation.................. 8,259 2,175 42
Amortization of goodwill and acquired intangible assets... 8,031 -- --
Acquired in-process research and development.............. 234,874 -- --
--------- ------- -------
Total costs and expenses.......................... 381,234 64,279 21,803
--------- ------- -------
Operating income (loss)..................................... (237,340) 17,096 (550)
Interest and other income................................... 4,683 486 175
Interest and other expense.................................. (124) (156) (101)
--------- ------- -------
Income (loss) before income taxes........................... (232,781) 17,426 (476)
Provision for income taxes.................................. 2,339 4,356 483
--------- ------- -------
Net income (loss)........................................... $(235,120) $13,070 $ (959)
========= ======= =======
Net income (loss) per share:
Basic net income (loss) per share......................... $ (3.55) $ 0.32 $ (0.03)
========= ======= =======
Diluted net income (loss) per share....................... $ (3.55) $ 0.16 $ (0.03)
========= ======= =======
Weighted average shares -- basic.......................... 66,259 41,094 32,470
========= ======= =======
Weighted average shares -- diluted........................ 66,259 81,545 32,470
========= ======= =======
- ---------------
(1) Excludes amortization of stock-based compensation of $416, $11 and $0 in
fiscal 2001, 2000 and 1999.
(2) Excludes amortization of stock-based compensation of $3,367, $1,373 and $27
in fiscal 2001, 2000 and 1999.
(3) Excludes amortization of stock-based compensation of $3,997, $211, and $4 in
fiscal 2001, 2000 and 1999.
(4) Excludes amortization of stock-based compensation of $479, $580 and $11 in
fiscal 2001, 2000 and 1999.
The accompanying notes are an integral part of these Consolidated Financial
Statements.
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MARVELL TECHNOLOGY GROUP LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
ACCUMULATED
COMMON STOCK ADDITIONAL DEFERRED OTHER RETAINED
-------------------- PAID-IN STOCK-BASED COMPREHENSIVE EARNINGS
SHARES AMOUNT CAPITAL COMPENSATION INCOME (DEFICIT) TOTAL
----------- ------ ---------- ------------ ------------- --------- ----------
Balance at January 31, 1998......... 39,434,000 $ 79 $ 295 $ -- $-- $ (9,952) $ (9,578)
Common stock options exercised...... 5,486,592 11 1,081 -- -- -- 1,092
Common stock repurchased............ (375,008) (1) (12) -- -- -- (13)
Issuance of warrants in connection
with Series D Mandatorily
Redeemable Convertible Preferred
Stock............................. -- -- 66 -- -- -- 66
Deferred stock-based compensation... -- -- 262 (262) -- -- --
Amortization of deferred stock-based
compensation...................... -- -- -- 42 -- -- 42
Net loss............................ -- -- -- -- -- (959) (959)
----------- ---- ---------- -------- --- --------- ----------
Balance at January 31, 1999......... 44,545,584 89 1,692 (220) -- (10,911) (9,350)
Common stock options exercised...... 4,437,376 9 2,070 -- -- -- 2,079
Common stock repurchased............ (51,400) -- (34) -- -- -- (34)
Deferred stock-based compensation... -- -- 13,852 (13,852) -- -- --
Amortization of deferred stock-based
compensation...................... -- -- -- 2,175 -- -- 2,175
Net income.......................... -- -- -- -- -- 13,070 13,070
----------- ---- ---------- -------- --- --------- ----------
Balance at January 31, 2000......... 48,931,560 98 17,580 (11,897) -- 2,159 7,940
Issuance of common stock in public
offering, net of issuance costs... 6,900,000 14 93,968 -- -- -- 93,982
Conversion of Mandatorily Redeemable
Preferred Stock into common
stock............................. 26,804,920 54 22,699 -- -- -- 22,753
Issuance of common stock and options
in connection with acquisition.... 29,110,455 58 2,473,253 (19,837) -- -- 2,453,474
Common stock options exercised...... 4,468,557 9 3,794 -- -- -- 3,803
Common stock warrants exercised..... 229,689 -- -- -- -- -- --
Common stock repurchased............ (1,211,819) (2) (478) -- -- -- (480)
Purchases of common stock under the
employee stock purchase plan...... 103,771 -- 1,323 -- -- -- 1,323
Deferred stock-based compensation,
net............................... -- -- 4,638 (4,638) -- -- --
Amortization of deferred stock-based
compensation...................... -- -- -- 8,259 -- -- 8,259
Tax benefit from employee stock
transactions...................... -- -- 713 -- -- -- 713
Comprehensive income (loss):
Unrealized gain (loss) on
available-for-sale investments.... -- -- -- -- 19 -- 19
Net income (loss)................... -- -- -- -- -- (235,120) (235,120)
----------
Total comprehensive income (loss)... (235,101)
----------- ---- ---------- -------- --- --------- ----------
Balance at January 31, 2001......... 115,337,133 $231 $2,617,490 $(28,113) $19 $(232,961) $2,356,666
=========== ==== ========== ======== === ========= ==========
The accompanying notes are an integral part of these Consolidated Financial
Statements.
57
60
MARVELL TECHNOLOGY GROUP LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED JANUARY 31,
-------------------------------
2001 2000 1999
--------- ------- -------
Cash flows from operating activities:
Net income (loss)......................................... $(235,120) $13,070 $ (959)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization.......................... 12,744 1,652 701
Amortization of deferred stock-based compensation...... 8,259 2,175 42
Acquired in-process research and development........... 234,874 -- --
Tax benefit from employee stock transactions........... 713 -- --
Changes in assets and liabilities, net of assets
acquired and liabilities assumed in purchase
acquisition:
Accounts receivable.................................. (9,254) (9,204) (5,398)
Inventory............................................ (8,720) (2,515) (2,050)
Prepaid expenses and other assets.................... (6,981) (1,187) (228)
Accounts payable..................................... 10,078 1,963 3,264
Accrued liabilities.................................. 2,261 1,618 1,089
Accrued employee compensation........................ 1,746 998 296
Income taxes payable................................. 2,512 4,686 770
Deferred revenue..................................... 771 -- --
Deferred income taxes................................ (1,691) (614) (453)
--------- ------- -------
Net cash provided by (used in) operating
activities...................................... 12,192 12,642 (2,926)
--------- ------- -------
Cash flows from investing activities:
Net cash received from purchase acquisition............... 68,542 -- --
Purchases of property and equipment....................... (12,161) (6,808) (1,564)
--------- ------- -------
Net cash provided by (used in) investing
activities...................................... 56,381 (6,808) (1,564)
--------- ------- -------
Cash flows from financing activities:
Proceeds from the issuance of convertible preferred stock,
net.................................................... 400 4,829 4,125
Proceeds from the issuance of common stock, net........... 99,108 2,045 1,079
Repurchases of common stock............................... (480) -- --
Principal payments on capital lease obligations and notes
payable................................................ (73) (3,579) (211)
Proceeds from borrowings on notes payable................. -- 1,956 1,705
--------- ------- -------
Net cash provided by financing activities......... 98,955 5,251 6,698
--------- ------- -------
Net increase in cash and cash equivalents................... 167,528 11,085 2,208
Cash and cash equivalents at beginning of period............ 16,600 5,515 3,307
--------- ------- -------
Cash and cash equivalents at end of period.................. $ 184,128 $16,600 $ 5,515
========= ======= =======
Supplemental cash flow information:
Cash paid for interest.................................... $ 2 $ 174 $ 101
========= ======= =======
Cash paid for income taxes................................ $ 318 $ 284 $ 166
========= ======= =======
Acquisition of property and equipment under capital lease
obligations............................................ $ -- $ 176 $ --
========= ======= =======
The accompanying notes are an integral part of these Consolidated Financial
Statements.
58
61
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES:
The Company
Marvell Technology Group Ltd. (the "Company"), a Bermuda exempted company,
was incorporated on January 11, 1995. The Company designs, develops and markets
integrated circuits using proprietary communications mixed-signal processing, or
CMSP, and digital signal processing technologies for communications-related
markets. On January 21, 2001, the Company completed its acquisition of Galileo
Technology Ltd.("Galileo"), an Israeli company. Galileo develops
high-performance communications internetworking and switching products for the
broadband communications market.
Initial public offering
In June 2000, the Company completed its initial public offering of common
stock. A total of 6,900,000 shares were sold by the Company at a price of $15.00
per share. The offering resulted in proceeds to the Company of approximately
$94.0 million, net of underwriting discounts and offering costs. At the closing
of the offering, all issued and outstanding shares of the Company's Mandatorily
Redeemable Convertible Preferred Stock were converted into an aggregate of
26,804,920 shares of common stock.
Basis of presentation
During fiscal 2000, the Company changed its fiscal year-end to the Saturday
nearest January 31. In fiscal 1999, its fiscal year ended on January 31. For
presentation purposes, the consolidated financial statements and notes refer to
January 31 as the Company's fiscal year-end.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates, and such differences
could affect the results of operations reporting in future periods.
Principles of consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated. The functional currency of the Company and
its subsidiaries is the United States dollar.
Fair value of financial instruments
The fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing parties.
The carrying amounts for cash and cash equivalents, accounts receivable, prepaid
expenses and other current assets, accounts payable, accrued liabilities,
accrued employee compensation and accrued merger costs approximate their
respective fair values because of the short-term maturity of these items. The
carrying value of the Company's debt approximates fair market value because of
prevailing interest rates.
Cash and cash equivalents
The Company considers all highly liquid investments with a maturity of
three months or less from the date of purchase to be cash equivalents. Cash and
cash equivalents consist of cash on deposit with banks, money market funds and
commercial deposits.
59
62
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Investments
The Company's investments are classified as available-for-sale securities
and are reported at fair value. Unrealized gains and losses are reported, net of
taxes, in accumulated other comprehensive income (loss), a component of
shareholders' equity. Realized gains and losses and declines in value judged to
be other than temporary on available-for-sale securities are included in
interest income or interest expense. The Company views its available-for-sale
portfolio as available for use in its current operations. Accordingly, the
Company has classified all investments as short-term, even though the stated
maturity date may be one year or more beyond the current balance sheet date. The
specific identification method is used to determine the cost of securities sold.
Interest and dividends on securities classified as available-for-sale are
included in interest income.
The Company also has equity investments in privately-held companies. These
investments are recorded at cost as the Company does not have the ability to
exercise significant influence over the operating and financial policies of
these companies. These investments are included in other long-term assets on the
Company's balance sheet. The Company monitors these investments for impairment
and makes appropriate reductions in carrying values when an impairment is deemed
to be other than temporary.
Concentration of credit risk and significant customers
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash equivalents,
short-term investments and accounts receivable. The Company places its cash
primarily in checking and money market accounts. Cash equivalents and short-term
investment balances are maintained with high quality financial institutions, the
composition and maturities of which are regularly monitored by management. The
Company believes that the concentration of credit risk in its trade receivables
with respect to the storage and communications industries, as well as the
limited customer base, located primarily in the Far East, are substantially
mitigated by the Company's credit evaluation process, relatively short
collection terms and the high level of credit worthiness of its customers. The
Company performs ongoing credit evaluations of its customers' financial
condition and limits the amount of credit extended when deemed necessary but
generally requires no collateral.
The following table sets forth sales to customers comprising 10% or more of
the Company's total revenue for the periods indicated:
YEARS ENDED JANUARY 31,
-----------------------
CUSTOMER 2001 2000 1999
-------- ----- ----- -----
A........................................................... 34% 36% 46%
B........................................................... 22% 24% 43%
C........................................................... 11% 14% *
D........................................................... * 14% *
E........................................................... * 10% *
- ---------------
* Less than 10% of total revenue
The Company's accounts receivable were concentrated with three customers at
January 31, 2001 (representing 13%, 12% and 10% of aggregate gross receivables)
and four customers at January 31, 2000 (representing 48%, 16%, 15% and 14% of
aggregate gross receivables).
Inventory
Inventory is stated at the lower of cost or market, cost being determined
under the first-in, first-out method. Appropriate consideration is given to
obsolescence, excessive levels, deterioration and other factors in evaluating
net realizable value.
60
63
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Property and equipment
Property and equipment, including capital leases and leasehold
improvements, are stated at cost less accumulated depreciation or amortization.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, which ranges from three to five years. Assets held
under capital leases and leasehold improvements are amortized over the term of
the lease or their estimated useful lives, whichever is shorter.
Goodwill and acquired intangible assets
Goodwill is recorded when the consideration paid for an acquisition exceeds
the fair value of net tangible and intangible assets acquired. Goodwill and
other acquisition-related intangibles are amortized on a straight-line basis
over their estimated economic lives of five years for goodwill, five years for
developed technology, ten years for trade names and six years for workforce.
Long-lived assets
Long-lived assets held and used by the Company are reviewed for impairment
whenever events or changes in circumstances indicate that their net book value
may not be recoverable. An impairment loss is recognized if the sum of the
expected future cash flows (undiscounted and before interest) from the use of
the asset is less than the net book value of the asset. The amount of the
impairment loss will generally be measured as the difference between net book
values of the assets and their estimated fair values. The Company believes that
no long-lived assets were impaired at January 31, 2001 or 2000.
Foreign currency transactions
Monetary accounts maintained in currencies other than the United States
dollar are remeasured using the foreign exchange rate at the balance sheet date.
Operational accounts and nonmonetary balance sheet accounts are measured and
recorded at the rate in effect at the date of the transaction. The effects of
foreign currency remeasurement are reported in current operations. The effect of
foreign currency remeasurement was not significant in fiscal years 2001, 2000 or
1999.
Revenue recognition
Revenue from the sale of integrated circuits is recognized upon shipment,
net of accruals for estimated sales returns and allowances. Revenue generated by
sales to distributors under agreements allowing certain rights of return are
deferred for financial reporting purposes until the products are sold by
distributors.
In December 1999, the Securities and Exchange Commission staff released
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements," which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements. The Company adopted SAB No. 101
in the fourth quarter of fiscal 2001, and it did not have a material impact on
the Company's financial statements.
Research and development
Research and development costs are expensed as incurred.
Stock-based compensation
The Company's employee stock option plan is accounted for in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and complies with the disclosure provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compen-
61
64
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
sation" ("SFAS 123"). Expense associated with stock-based compensation is
amortized on an accelerated basis over the vesting period of the individual
awards consistent with the method described in Financial Accounting Standards
Board Interpretation No. 28, ("FIN 28"). Application of FIN 28 results in
amortization of approximately 46% of the compensation in the first 12 months of
vesting, 26% of the compensation in the second 12 months of vesting, 15% of the
compensation in the third 12 months of vesting, 9% of the compensation in the
fourth 12 months of vesting and 4% of the compensation in the fifth 12 months of
vesting. The Company accounts for stock issued to non-employees in accordance
with the provisions of SFAS 123 and Emerging Issues Task Force Consensus No.
96-18, "Accounting for Equity Instruments that are Offered to Other Than
Employees for Acquiring of in Conjunction with Selling Goods or Services" ("EITF
96-18"). Under SFAS 123 and EITF 96-18, stock option awards issued to
non-employees are accounted for at their fair value using the Black-Scholes
method. The fair value of each non-employee stock award is remeasured at each
period end until a commitment date is reached, which is generally the vesting
date.
Comprehensive income (loss)
The Company has adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes
standards for reporting and displaying comprehensive income and its components
in a full set of general-purpose financial statements. For the year ended
January 31, 2001, comprehensive loss is comprised of net loss and unrealized
gains and losses on available-for-sale securities. There was no difference
between the Company's net income or loss and its total comprehensive income or
loss for the years ended January 31, 2000 and 1999.
Net income (loss) per share
The Company reports both basic net income (loss) per share, which is based
upon the weighted average number of common shares outstanding excluding
contingently issuable or returnable shares, and diluted net income (loss) per
share, which is based on the weighted average number of common shares
outstanding and dilutive potential common shares.
62
65
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table sets forth the computation of basic and diluted net
income (loss) per share of common stock (in thousands, except per share
amounts):
YEARS ENDED JANUARY 31,
-------------------------------
2001 2000 1999
--------- ------- -------
Numerator:
Net income (loss)................................. $(235,120) $13,070 $ (959)
========= ======= =======
Denominator:
Basic --
Weighted-average shares of common stock
outstanding.................................. 71,074 46,428 40,459
Less: unvested common shares subject to
repurchase................................... (4,815) (5,334) (7,989)
--------- ------- -------
Denominator for basic calculation............ 66,259 41,094 32,470
--------- ------- -------
Effect of dilutive securities --
Unvested common shares subject to repurchase... -- 5,334 --
Mandatorily redeemable convertible preferred
stock and warrants........................... -- 25,336 --
Common stock options and warrants.............. -- 9,781 --
--------- ------- -------
Denominator for diluted calculation.......... 66,259 81,545 32,470
========= ======= =======
Basic net income (loss) per share................... $ (3.55) $ 0.32 $ (0.03)
========= ======= =======
Diluted net income (loss) per share................. $ (3.55) $ 0.16 $ (0.03)
========= ======= =======
The following table sets forth potential shares of common stock, assuming
conversion of preferred stock and preferred stock warrants that are not included
in the diluted net loss per share calculation above because to do so would be
anti-dilutive for the periods presented (in thousands):
YEARS ENDED JANUARY 31,
-----------------------
2001 1999
-------- ---------
Unvested common stock subject to repurchase................. 4,815 7,989
Mandatorily Redeemable Convertible preferred stock and
warrants.................................................. 11,130 25,962
Common stock options and warrants........................... 10,431 12,896
Recent accounting pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities," as amended by
SFAS 137, "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133." In June
2000, the FASB issued SFAS 138, "Accounting for Certain Derivative Instruments
and Certain Hedging Activities," which amended certain terms and conditions of
SFAS 133. SFAS 133, as amended, requires that all derivative instruments be
recorded on the balance sheet at their fair market value. Changes in the fair
market value of derivatives are recorded each period in current earnings or
comprehensive income, depending on whether a derivative is designed as part of a
hedge transaction, and if so, the type of hedge transaction. All of the
Company's revenues and the majority of its costs are denominated in U.S.
dollars, and to date the Company has not entered into any derivative contracts.
The Company will adopt SFAS No. 133 and 138 on February 1, 2001. The adoption is
not expected to have a significant impact on the Company's consolidated
financial statements.
63
66
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- ACQUISITION:
Effective January 21, 2001, the Company acquired Galileo Technology Ltd. in
a stock-for-stock transaction. Galileo develops high-performance communications
internetworking and switching products for the broadband communications market.
The acquisition has been accounted for using the purchase method of accounting,
and the operating results of Galileo have been included in the Company's
consolidated financial statements from the date of acquisition. The total
purchase price for this acquisition was approximately $2.5 billion. The purchase
price was allocated to the tangible and intangible assets acquired and
liabilities assumed based upon their respective fair values at the acquisition
date. The purchase price consisted of 29,110,455 shares of the Company's common
stock (estimated fair value of $2.1 billion), options to purchase 6,826,407
shares of the Company's common stock (estimated fair value of $381.4 million)
and acquisition-related expenses of approximately $16.1 million. The allocation
of the purchase price was as follows (in thousands):
Net tangible assets...................................... $ 125,710
Intangible assets:
Goodwill............................................ 1,674,142
Developed technology................................ 388,955
Trade name.......................................... 33,241
Workforce........................................... 12,532
Deferred stock-based compensation........................ 19,837
In-process research and development...................... 234,874
----------
Total.......................................... $2,489,291
==========
The amounts allocated to goodwill and other intangible assets are amortized
on a straight-line basis over periods between five and ten years.
The amount allocated to deferred stock-based compensation relates to the
intrinsic value of the unvested Galileo stock options assumed. The Galileo stock
options generally vest over a period of four years. This deferred stock-based
compensation is amortized on an accelerated basis over the vesting period of the
individual awards consistent with the method described in FIN 28. Application of
FIN 28 results in amortization of approximately 52% of the compensation in the
first 12 months of vesting, 27% of the compensation in the second 12 months of
vesting, 15% of the compensation in the third 12 months of vesting and 6% of the
compensation in the fourth 12 months of vesting.
The amount allocated to in-process research and development was determined
based on an appraisal completed by an independent third party using established
valuation techniques in the high-technology industry and was expensed upon
acquisition because technological feasibility had not been established and no
future alternative uses existed. The fair values of Galileo's in-process
research and development ("IPRD"), as well as their developed technologies, were
determined using the income approach, which discounts expected future cash flows
to present value. The discount rates used in the present value calculations were
derived from a weighted-average cost of capital analysis and venture capital
surveys, adjusted upward to reflect additional risks inherent in the development
life cycle. A discount rate of 16.5% was used for developed technology, and
rates between 21.5% and 34.0% were used for IPRD, depending on the stage of
completion of each technology. As of the date of acquisition, the estimated cost
to complete the technology under development was approximately $21.0 million.
Development of this technology remains a substantial risk due to a number of
factors, including the remaining effort to achieve technological feasibility,
rapidly changing customer markets and competitive threats from other companies.
The unaudited pro forma information below assumes that Galileo had been
acquired at the beginning of fiscal 2000 and includes the effect of amortization
of goodwill and other intangible assets from that date. The
64
67
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
impact of charges for purchased in-process research and development has been
excluded. This data is presented for informational purposes only and is not
necessarily indicative of the results of future operations or the results that
would have been achieved had the acquisition taken place on that date. The pro
forma information is as follows (in thousands, except per share data):
YEARS ENDED JANUARY 31,
------------------------
2001 2000
---------- ----------
Net revenues......................................... $ 250,425 $ 161,092
Net loss............................................. $(393,668) $(389,168)
Basic net loss per share............................. $ (4.15) $ (5.54)
Diluted net loss per share........................... $ (4.15) $ (5.54)
NOTE 3 -- AVAILABLE-FOR-SALE SECURITIES:
The fair value and the amortized cost of available-for-sale securities at
January 31, 2001 are presented in the following tables (in thousands):
JANUARY 31, 2001
--------------------------------------------------
UNREALIZED UNREALIZED ESTIMATED
AMORTIZED HOLDING HOLDING FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
Corporate debt securities................ $41,832 $ 3 $-- $41,835
State, county and municipal debt
securities............................. 27,699 16 -- 27,715
Foreign government securities............ 13,888 -- -- 13,888
------- --- -- -------
$83,419 $19 $-- $83,438
======= === == =======
Reported as:
Cash equivalents....................... $43,503 $-- $-- $43,503
Short-term investments................. 39,916 19 -- 39,935
------- --- -- -------
$83,419 $19 $-- $83,438
======= === == =======
The contractual maturities of available-for-sale debt securities classified
as short-term investments at January 31, 2001 are as follows (in thousands):
AMORTIZED FAIR
COST VALUE
--------- -------
Due in one year or less................................. $23,110 $23,129
Due between one and three years......................... 12,456 12,456
Due between three and five years........................ 4,350 4,350
------- -------
$39,916 $39,935
======= =======
65
68
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- BALANCE SHEET DETAILS (IN THOUSANDS):
JANUARY 31,
---------------------
2001 2000
---------- -------
INVENTORY:
Work-in-process..................................... $ 15,530 $ 4,830
Finished goods...................................... 15,394 --
---------- -------
$ 30,924 $ 4,830
========== =======
PROPERTY AND EQUIPMENT:
Machinery and equipment............................. $ 21,631 $ 3,890
Computer software................................... 13,605 3,981
Furniture and fixtures.............................. 6,119 1,633
Leasehold improvements.............................. 7,582 685
---------- -------
48,937 10,189
Less: Accumulated depreciation and amortization..... (17,753) (2,776)
---------- -------
$ 31,184 $ 7,413
========== =======
GOODWILL AND INTANGIBLE ASSETS:
Goodwill............................................ $1,674,142 $ --
Developed technology................................ 388,955 --
Trade name.......................................... 33,241 --
Workforce........................................... 12,532 --
---------- -------
2,108,870 --
Less: Accumulated amortization...................... (8,031) --
---------- -------
$2,100,839 $ --
========== =======
Machinery and equipment include $133 and $320 of assets under capital
leases at January 31, 2001 and 2000, respectively. Accumulated depreciation for
such equipment was $85 and $124 at January 31, 2001 and 2000, respectively.
NOTE 5 -- MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK:
Mandatorily redeemable convertible preferred stock at January 31, 2000
consisted of the following (in thousands):
SHARES PROCEEDS
------------------------- NET OF LIQUIDATION
AUTHORIZED OUTSTANDING ISSUANCE COSTS AMOUNT
---------- ----------- -------------- -----------
Series A............................ 525 525 $ 350 $ 350
Series B............................ 1,119 1,119 1,199 1,231
Series C............................ 2,184 2,090 7,098 7,316
Series D............................ 3,750 2,526 10,206 10,945
Series E............................ 422 350 3,500 3,500
----- ----- ------- -------
8,000 6,610 $22,353 $23,342
===== ===== ======= =======
66
69
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following is a summary of activity in mandatorily redeemable
convertible preferred stock (in thousands):
TOTAL
SHARES AMOUNT
------ --------
Balance at January 31, 1998................................. 4,838 $ 13,465
Issuance of Series D Mandatorily Redeemable Convertible
Preferred
Stock..................................................... 1,043 4,059
------ --------
Balance at January 31, 1999................................. 5,881 17,524
Issuance of Series E Mandatorily Redeemable Convertible
Preferred
Stock..................................................... 350 3,500
Issuance of Series C and Series D Mandatorily Redeemable
Convertible Preferred Stock upon exercise of warrants..... 379 1,329
------ --------
Balance at January 31, 2000................................. 6,610 22,353
Issuance of Series D Mandatorily Redeemable Convertible
Preferred
Stock upon exercise of warrants........................... 91 400
Conversion of Series A, Series B, Series C, Series D and
Series E Mandatorily Redeemable Convertible Preferred
Stock into common stock................................... (6,701) (22,753)
------ --------
Balance at January 31, 2001................................. -- $ --
====== ========
Effective upon the closing of the Company's initial public offering in June
2000, all outstanding shares of Series A, Series B, Series C, Series D and
Series E were automatically converted into a total of 26,804,920 shares of
common stock.
NOTE 6 -- PREFERRED AND COMMON STOCK WARRANTS:
In connection with the issuance of Series C, the Company issued warrants to
purchase 471,428 shares of Series C at $3.50 per share. Warrants to purchase
377,142 shares of Series C were exercised in April and May 1999, and the
remaining 94,286 warrants expired during fiscal 2000.
During fiscal 1998, in connection with the issuance of Series D, the
Company received bridge financing of approximately $2,200,000 for which it
issued warrants to purchase 93,473 shares of Series D at $4.33 per share. The
Company valued the warrants under the "Black-Scholes" formula at approximately
$84,000. The warrant value has been recorded as interest expense. Warrants to
purchase 2,118 shares of Series D were exercised during fiscal 2000, and
warrants to purchase the remaining 91,355 shares of Series D were exercised
during fiscal 2001.
During fiscal 1999, in connection with the Company's Loan and Security
Agreement with a bank, the Company issued warrants to purchase 45,000 shares of
Series D at $4.33 per share which were exercisable on a net basis. The Company
valued the warrants under the "Black-Scholes" formula at approximately $66,000.
The warrant value has been recorded as interest expense. Upon the closing of the
Company's initial public offering, these warrants converted into warrants to
purchase 180,000 shares of common stock at $1.0825 per share. These warrants
were exercised on a net basis for 172,947 shares of common stock in fiscal 2001.
In July 1999, in connection with the Company's Loan and Security Agreement
with a bank, the Company issued warrants to purchase 60,000 shares of common
stock at $1.50 per share which were exercisable on a net basis. The Company
valued the warrants under the "Black-Scholes" formula at approximately $23,000.
The warrant value has been recorded as interest expense. These warrants were
exercised on a net basis for 56,742 shares of common stock in fiscal 2001.
NOTE 7 -- COMMON STOCK:
In January 2000, the Board of Directors approved an increase in the number
of authorized common shares to 242,000,000. This increase was approved by the
Company's shareholders on March 17, 2000.
67
70
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Stock dividend
On March 17, 2000, the Company's shareholders approved two 100% common
stock dividends. All references throughout the consolidated financial statements
to number of shares, per share amounts and stock option data have been restated
to reflect the common stock dividends.
1995 Stock Option Plan
In April 1995, the Company adopted the 1995 Stock Option Plan (the "Option
Plan"). The Option Plan, as amended, had 33,268,553 shares of common stock
reserved for issuance thereunder as of the end of fiscal 2001. The Option Plan
allows for the issuance of incentive and nonqualified stock options to employees
and consultants of the Company.
Options granted under the Option Plan generally have a term of ten years
and generally must be issued at prices not less than 100% and 85% for incentive
and nonqualified stock options, respectively, of the fair market value of the
stock on the date of grant. Incentive stock options granted to shareholders who
own greater than 10% of the outstanding stock are for periods not to exceed five
years, and must be issued at prices not less than 110% of the fair market value
of the stock on the date of grant. The options vest 20% one year after the
vesting commencement date, and the remaining shares vest one-sixtieth per month
over the remaining forty-eight months. Options granted under the Option Plan
prior to March 1, 2000 may be exercised prior to vesting. The Company has the
right to repurchase such shares at their original purchase price if the optionee
is terminated from service prior to vesting. Such right expires as the options
vest over a five year period. Options granted under the Option Plan subsequent
to March 1, 2000 may only be exercised upon vesting.
1997 Directors' Stock Option Plan
In August 1997, the Company adopted the 1997 Directors' Stock Option Plan
(the "Directors' Plan"). The Directors' Plan has 900,000 shares of common stock
reserved thereunder. Under the Directors' Plan, an outside director is granted
180,000 options upon appointment to the Board of Directors. These options vest
20% one year after the vesting commencement date and remaining shares vest
one-sixtieth per month over the remaining forty-eight months. An outside
director is also granted 36,000 options on the date of each annual meeting of
the shareholders. These options vest one-twelfth per month over twelve months
after the fourth anniversary of the vesting commencement date. Options granted
under the Directors' Plan may be exercised prior to vesting. The Company has the
right to repurchase such shares at their original purchase price if the director
is terminated or resigns from the Board of Directors prior to vesting. Such
right expires as the options vest over a five year period.
Other stock option arrangements
In October 1995, the Company granted to a director nonqualified stock
options to purchase 1,500,000 shares of common stock at $0.0333 per share. These
options vest ratably over a five year vesting period. The options may be
exercised prior to vesting but will remain subject to repurchase until vested.
These options were exercised in October 1995. In July 1996, the Company granted
to the same director nonqualified stock options to purchase 1,500,000 shares of
common stock at $0.0367 per share. These options vest 20% one year after the
date of grant, and the remaining shares vest one-sixtieth per month over the
remaining forty-eight months. These options may also be exercised prior to
vesting but will remain subject to repurchase until vested.
In January 1998, the Company granted to a director nonqualified stock
option to purchase 450,000 shares of common stock at $0.25 per share. The
options vest 20% one year after the vesting commencement date, and the remaining
shares vest one-sixtieth per month over the remaining forty-eight months. The
options may be
68
71
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
exercised prior to vesting but will remain subject to repurchase until vested.
The options were exercised in March 2000.
Combined option plan activity
The following table summarizes the activity under the Option Plan, the
Directors' Plan and other stock option arrangements:
SHARES OPTIONS WEIGHTED AVERAGE
AVAILABLE OUTSTANDING EXERCISE PRICE
--------- ----------- ----------------
(IN THOUSANDS)
Balance at January 31, 1998................... 4,228 12,738 $ 0.12
Additional shares authorized................ 6,400 -- --
Options granted............................. (6,677) 6,677 $ 0.49
Options canceled............................ 1,032 (1,032) $ 0.13
Shares repurchased.......................... 375 -- $ 0.03
Options exercised........................... -- (5,487) $ 0.20
------- ------
Balance at January 31, 1999................... 5,358 12,896 $ 0.28
Additional shares authorized................ 3,600 -- --
Options granted............................. (5,289) 5,289 $ 1.80
Options canceled............................ 1,363 (1,363) $ 0.39
Shares repurchased.......................... 51 -- $ 0.66
Options exercised........................... -- (4,437) $ 0.44
------- ------
Balance at January 31, 2000................... 5,083 12,385 $ 0.87
Additional shares authorized................ 10,595 -- --
Options granted and assumed................. (14,355) 14,355 $19.32
Options canceled............................ 837 (837) $ 7.32
Shares repurchased.......................... 1,156 -- $ 0.32
Options exercised........................... -- (4,468) $ 0.85
------- ------
Balance at January 31, 2001................... 3,316 21,435 $12.98
------- ------
The following table summarizes information relating to stock options
outstanding and exercisable under the Option Plan, the Directors' Plan and other
stock option arrangements at January 31, 2001:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------- ---------------------------------
WEIGHTED AVERAGE
NUMBER REMAINING WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
-------------- ---------------- ---------------- -------------- ----------------
(IN THOUSANDS) (IN THOUSANDS)
Range of exercise
prices:
$ 0.03 - $ 0.25....... 3,047 5.69 $ 0.07 3,034 $ 0.07
$ 0.33 - $ 1.75....... 3,351 8.13 $ 1.05 3,348 $ 1.05
$ 2.00 - $10.00....... 6,493 8.70 $ 6.99 3,161 $ 4.53
$11.12 - $46.56....... 8,094 9.44 $25.04 912 $24.10
$47.01 - $93.88....... 450 9.64 $58.52 -- --
------ ------
21,435 10,455
====== ======
In connection with the acquisition of Galileo Technology Ltd., the Company
has assumed Galileo's stock option plans. Upon acquisition, a total of 6,826,407
shares of the Company's common stock were reserved for issuance under the
assumed plans, and the related options are included in the preceding tables.
These options
69
72
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
will continue to be governed by the terms and conditions of the original option
agreements which generally included a four-year vesting schedule and an eight to
ten year option term.
At January 31, 2001, a total of 3,603,430 unvested shares remain subject to
the Company's repurchase rights under the Option Plan, the Directors' Plan and
other stock option arrangements.
2000 Employee Stock Purchase Plan
In May 2000, the Board of Directors approved the 2000 Employee Stock
Purchase Plan (the "Purchase Plan"). In June 2000, the Company's stockholders
approved the Purchase Plan, and 1,000,000 shares of common stock were reserved
for issuance thereunder. Under the Purchase Plan, employees are granted the
right to purchase shares of common stock at a price per share that is 85% of the
lesser of the fair market value of the shares at: (i) the participant's entry
date into the two-year offering period, or (ii) the end of each six-month
purchase period within the offering period. Participant's purchase stock using
payroll deductions, which may not exceed 20% of their total cash compensation.
Offering and purchase periods will begin on December 1 and June 1 of each year,
with the exception that the first offering period of the Purchase Plan began on
June 26, 2001, the date of our initial public offering. During the year ended
January 31, 2001, a total of 103,771 shares were issued under the Purchase Plan
at an average price of $12.75 per share.
Issuance of common stock to founders
In January 1995, the Company issued 36,000,000 shares of its common stock
("the Founders' Shares") to its founders. Each founder has granted the Company a
call right on 50% of his or her shares, exercisable in the event such founder's
employment terminated for any reason. The call right expires at a rate of 1/60
per month. At January 31, 2001, no Founders' Shares are subject to call.
Stock-based compensation
During fiscal 2001, 2000 and 1999, the Company granted options to employees
and directors and recognized deferred stock-based compensation of approximately
$5,761,000, $13,852,000 and $262,000, respectively. Also during fiscal 2001, the
Company recorded $19,837,000 of deferred stock-based compensation relating to
the assumed options of Galileo. Such deferred stock-based compensation is being
amortized using an accelerated method over the vesting period of the options.
Pro forma disclosures
Had compensation expense for the Company's stock options been determined
based on the fair value at the grant dates, as prescribed by SFAS 123, the
Company's net income (loss) would have been as follows (in thousands, except per
share data):
YEARS ENDED JANUARY 31,
-------------------------------
2001 2000 1999
--------- ------- -------
Net income (loss):
As reported............................................... $(235,120) $13,070 $ (959)
Pro forma................................................. $(242,762) $11,857 $(1,572)
Basic net income (loss) per share:
As reported............................................... $ (3.55) $ 0.32 $ (0.03)
Pro forma................................................. $ (3.66) $ 0.29 $ (0.05)
Diluted net income (loss) per share:
As reported............................................... $ (3.55) $ 0.16 $ (0.03)
Pro forma................................................. $ (3.66) $ 0.15 $ (0.05)
70
73
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the purpose of the above noted SFAS 123 pro forma disclosure, the fair
value of each stock option granted prior to the Company's initial public
offering in June 2000 was estimated on the date of grant using the minimum value
method, which does not consider stock price volatility, as prescribed by SFAS
123. Stock options granted subsequent to the Company's initial public offering
have been valued using the Black-Scholes option pricing model. Among other
things, the Black-Scholes model considers the expected volatility of the
Company's stock price in arriving at an option valuation. The fair value of the
Company's stock options granted in fiscal 2001 subsequent to the initial public
offering was estimated using an expected volatility of 70%. The following table
summarizes the estimated fair value of options and additional assumptions used
in the SFAS 123 calculations:
STOCK OPTION PLANS ESPP
----------------------- -----
2001 2000 1999 2001
----- ----- ----- -----
Estimated fair value................................ $7.80 $2.96 $0.38 $5.06
Expected term (in years)............................ 3.3 5.0 5.0 0.4
Risk-free interest rate............................. 6.3% 6.1% 4.5% 5.3%
Dividend yield...................................... -- -- -- --
NOTE 8 -- BENEFIT PLAN:
Effective January 1, 1994, the Company adopted a 401(k) plan which allows
all employees to participate by making salary deferred contributions to the
401(k) plan ranging from 1% to 20% of eligible earnings. The Company may make
discretionary contributions to the 401(k) plan upon approval by the Board of
Directors. No Company contributions were made to the 401(k) plan from inception
through January 31, 2001.
NOTE 9 -- INCOME TAXES:
The provision for income taxes consists of the following (in thousands):
YEARS ENDED JANUARY 31,
--------------------------
2001 2000 1999
------- ------ -----
Current tax expense:
Federal................................................ $ 2,085 $ 387 $ 571
State.................................................. 734 1 1
Foreign................................................ 1,211 4,582 364
------- ------ -----
Total current tax expense...................... 4,030 4,970 936
------- ------ -----
Deferred income tax:
Federal................................................ (1,107) (380) (298)
State.................................................. (584) (234) (155)
------- ------ -----
Total deferred income tax expense (benefit).... (1,691) (614) (453)
------- ------ -----
Total provision for income taxes............... $ 2,339 $4,356 $ 483
======= ====== =====
71
74
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Deferred tax assets (liabilities) consist of the following (in thousands):
AS OF JANUARY 31,
------------------------
2001 2000 1999
------ ------ ----
Research and development credits........................... $2,240 $1,281 $598
California investment credits.............................. 158 29 29
Reserves and accruals...................................... 1,320 324 213
Depreciation............................................... 44 -- 2
------ ------ ----
Total deferred tax assets.................................. 3,762 1,634 842
Deferred tax liabilities................................... -- (178) --
------ ------ ----
Net deferred tax assets.................................... $3,762 $1,456 $842
====== ====== ====
Reconciliation of the statutory federal income tax to the Company's
effective tax:
YEARS ENDED JANUARY 31,
-----------------------
2001 2000 1999
----- ----- -----
Provision (benefit) at federal statutory rate............. (34.0)% 35.0% (34.0)%
In-process research and development....................... 35.5 -- --
Non-U.S. losses........................................... -- -- 242.1
Difference in U.S. and non-U.S. taxes..................... (2.1) (10.6) (7.8)
State taxes, net of federal benefit....................... (0.2) (0.9) (21.4)
General business credits.................................. (0.5) (3.0) (81.0)
Non-cash stock compensation............................... 1.2 4.4 3.0
Other..................................................... 1.1 0.1 0.6
----- ----- -----
Effective tax rate...................................... 1.0% 25.0% 101.5%
===== ===== =====
The U.S. and non-U.S. components of income (loss) before income taxes are
(in thousands):
YEARS ENDED JANUARY 31,
-------------------------------
2001 2000 1999
--------- ------- -------
U.S. operations..................................... $ 2,743 $ 1,222 $ 580
Non-U.S. operations................................. (235,524) 16,204 (1,056)
--------- ------- -------
$(232,781) $17,426 $ (476)
========= ======= =======
As of January 31, 2001, the Company had federal research tax credit
carryforwards for U.S. federal income tax return purposes of approximately $1.0
million that expire through 2021. As of January 31, 2001, the Company had unused
California research tax credits of approximately $1.2 million that will carry
forward indefinitely until utilized. Federal and state tax laws impose
restrictions on the utilization of tax credit carryforwards in the event of an
"ownership change" as defined by the Internal Revenue Code.
The Company has an undertaking from the government of Bermuda that it will
not be subject to tax on its income and capital gains in Bermuda until March 28,
2016; however, the Company is subject to United States federal income tax on
income of its wholly-owned subsidiary, Marvell Semiconductor, Inc., and on any
portion of its non-U.S. income which is considered effectively connected with
the conduct of a trade or business within the United States.
Effective July 1, 1999, the Company's Singapore operations have been
granted Pioneer Status which could reduce the amount of Singapore taxes the
Company will pay on certain non-investment income for a period of six years.
This tax holiday is conditional upon the Company complying with certain
conditions for minimum levels of investment, headcount and the nature of its
activities at its Singapore operations.
72
75
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
As discussed in Note 1, on January 21, 2001, the Company acquired Galileo
Technology Ltd. Galileo's Israeli operations have been granted Approved
Enterprise Status by the Israeli government under the Law for the Encouragement
of Capital Investments, 1959 (the "Investment Law"). The Approved Enterprise
Status provides the Company with a tax holiday on undistributed Israeli income.
This tax holiday is conditional upon the Company fulfilling the conditions
stipulated by the Investment Law, regulations published thereunder and the
instruments of approval for the specific investments in Approved Enterprises.
The Company anticipates that it will start paying some income tax in Israel
beginning in 2004.
NOTE 10 -- COMMITMENTS
The Company leases its facilities under noncancelable operating leases.
Future minimum lease payments under the operating leases are as follows (in
thousands):
OPERATING
FISCAL YEAR LEASES
----------- ---------
2002....................................................... $ 4,354
2003....................................................... 3,073
2004....................................................... 2,938
2005....................................................... 2,801
2006....................................................... 1,873
Thereafter................................................. 7,054
-------
Total future minimum lease payments........................ $22,093
=======
Rent expense on the operating leases for the years ended January 31, 2001,
2000 and 1999 was approximately $2,358,000, $859,000 and $214,000, respectively.
Purchase commitments
The Company's manufacturing relationships with foundries allow for the
cancellation of all outstanding purchase orders, but requires repayment of all
expenses incurred to date. As of January 31, 2001, foundries had incurred
approximately $16,004,000 of manufacturing expenses on the Company's outstanding
purchase orders.
NOTE 11 -- SEGMENT AND GEOGRAPHIC INFORMATION:
The Company has adopted Statement of Financial Accounting Standards No. 131
"Disclosure about Segments of an Enterprise and Related Information" ("SFAS
131"). Based on its operating management and financial reporting structure, the
Company has determined that it has one reportable business segment: the design,
development and sale of integrated circuits.
73
76
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following tables present net revenues and long-lived asset information
based on geographic region. Net revenues are based on the destination of the
shipments and long-lived assets are based on the physical location of the assets
(in thousands):
YEARS ENDED JANUARY 31,
------------------------------
NET REVENUES: 2001 2000 1999
------------- -------- ------- -------
Japan................................................ $ 20,085 $20,218 $ 2,162
Korea................................................ 2,199 5,524 9,897
Singapore............................................ 65,555 40,620 8,868
Taiwan............................................... 21,756 5,290 --
United States........................................ 11,486 404 276
Others............................................... 22,813 9,319 50
-------- ------- -------
$143,894 $81,375 $21,253
-------- ------- -------
AS OF JANUARY 31,
---------------------------
LONG-LIVED ASSETS: 2001 2000 1999
------------------ ------- ------ ------
Israel.................................................. $14,069 $ -- $ --
United States........................................... 15,896 7,034 1,911
Others.................................................. 1,219 379 170
------- ------ ------
$31,184 $7,413 $2,081
======= ====== ======
The following table presents net revenues for groups of similar products
(in thousands):
YEARS ENDED JANUARY 31,
------------------------------
NET REVENUES: 2001 2000 1999
------------- -------- ------- -------
Storage products..................................... $122,850 $81,375 $21,253
Communications products.............................. 21,044 -- --
-------- ------- -------
$143,894 $81,375 $21,253
======== ======= =======
74
77
SUPPLEMENTARY DATA (UNAUDITED)
FISCAL 2001
------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net revenue....................................... $29,664 $32,175 $36,212 $ 45,843
Gross profit...................................... 16,484 17,095 19,213 24,055
Net income (loss)................................. 2,068 624 1,798 (239,610)
Net income (loss) per share:
Basic........................................... $ 0.04 $ 0.01 $ 0.02 $ (2.85)
Diluted......................................... $ 0.02 $ 0.01 $ 0.02 $ (2.85)
FISCAL 2000
----------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net revenue......................................... $14,056 $16,860 $23,463 $26,996
Gross profit........................................ 7,861 9,740 14,589 15,412
Net income.......................................... 2,078 2,517 5,291 3,184
Net income per share:
Basic............................................. $ 0.06 $ 0.06 $ 0.13 $ 0.08
Diluted........................................... $ 0.03 $ 0.03 $ 0.06 $ 0.04
During the fourth quarter of fiscal 2001, the Company recorded an
in-process research and development charge of $234.9 million in connection with
the acquisition of Galileo Technology Ltd.
75
78
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Certain of the information required by this Item with respect to our
executive officers is set forth under the caption "Management" in Part I. The
remaining information required by Items 401 and 405 of Regulation S-K is set
forth in our Definitive Proxy Statement in connection with our 2001 Annual
General Meeting of Shareholders which will be filed with the Securities and
Exchange Commission no later than 120 days after January 27, 2001. Our 2001
Proxy Statement, exclusive of the information set forth under the captions
"Report of the Compensation Committee," "Report of the Audit Committee" and
"Stock Price Performance Graph," is incorporated herein by this reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Item 402 of Regulation S-K is set forth in our
2001 Proxy Statement. Our 2001 Proxy Statement, exclusive of the information set
forth under the captions "Report of the Compensation Committee," "Report of the
Audit Committee" and "Stock Price Performance Graph," is incorporated herein by
this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by Item 403 of Regulation S-K is set forth in our
2001 Proxy Statement. Our 2001 Proxy Statement, exclusive of the information set
forth under the captions "Report of the Compensation Committee," "Report of the
Audit Committee" and "Stock Price Performance Graph," is incorporated herein by
this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Item 404 of Regulation S-K is set forth in our
2001 Proxy Statement. Our 2001 Proxy Statement, exclusive of the information set
forth under the captions "Report of the Compensation Committee," "Report of the
Audit Committee" and "Stock Price Performance Graph," is incorporated herein by
this reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this Annual Report on Form
10-K:
1. Financial Statements:
PAGE
REFERENCE
---------
Consolidated Balance Sheets as of January 31, 2001 and
2000...................................................... 55
Consolidated Statements of Operations for the years ended
January 31, 2001, 2000 and 1999........................... 56
Consolidated Statements of Shareholders' Equity (Deficit)
for the years ended January 31, 2001, 2000 and 1999....... 57
Consolidated Statements of Cash Flows for the years ended
January 31, 2001, 2000 and 1999........................... 58
Notes to Consolidated Financial Statements.................. 59
76
79
2. Financial Statement Schedules:
Schedules not listed above have been omitted because they are not
applicable or required, or the information required to be set forth therein
is included in the Consolidated Financial Statements or Notes thereto.
3. Exhibits.
See Item 14(c) below.
(b) Reports on Form 8-K
On January 24, 2001, we filed a current report on Form 8-K in connection
with (i) the issuance of a press release dated January 19, 2001
announcing shareholder approval of our pending acquisition of Galileo
Technology Ltd.; and (ii) the issuance of a press release dated January
22, 2001 announcing that we had completed our acquisition of Galileo
Technology Ltd. as a direct wholly-owned subsidiary.
(c) Index to Exhibits
See Index to Exhibits on page I-1.
(d) Financial Statements Required by Regulation S-X which are excluded from the
annual report to Shareholders by Rule 14a-3(b).
Not applicable.
77
80
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Sunnyvale, California, on April 26, 2001.
MARVELL TECHNOLOGY GROUP LTD.
By: /s/ SEHAT SUTARDJA
------------------------------------
Sehat Sutardja
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant in
the capacities and on the dates indicated.
NAME AND SIGNATURE TITLE DATE
------------------ ----- ----
/s/ SEHAT SUTARDJA Co-Chairman of the Board, President April 26, 2001
- ------------------------------------------------ and Chief Executive Officer
Sehat Sutardja (Principal Executive Officer)
/s/ GEORGE HERVEY Vice President of Finance and April 26, 2001
- ------------------------------------------------ Chief Financial Officer
George Hervey (Principal Financial and
Accounting Officer)
/s/ WEILI DAI Executive Vice President, April 26, 2001
- ------------------------------------------------ Secretary and Director
Weili Dai
/s/ PANTAS SUTARDJA Vice President and Director April 26, 2001
- ------------------------------------------------
Pantas Sutardja
/s/ AVIGDOR WILLENZ Director April 26, 2001
- ------------------------------------------------
Avigdor Willenz
/s/ MANUEL ALBA Director April 26, 2001
- ------------------------------------------------
Manuel Alba
/s/ DIOSDADO P. BANATAO Co-Chairman of the Board April 26, 2001
- ------------------------------------------------
Diosdado P. Banatao
/s/ HERBERT CHANG Director April 26, 2001
- ------------------------------------------------
Herbert Chang
/s/ JOHN M. CIOFFI Director April 26, 2001
- ------------------------------------------------
John M. Cioffi
/s/ PAUL R. GRAY Director April 26, 2001
- ------------------------------------------------
Paul R. Gray
/s/ RON VERDOORN Director April 26, 2001
- ------------------------------------------------
Ron Verdoorn
S-1
81
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1 Memorandum of Association of the registrant, incorporated by
reference to Exhibit 3.1 of the registrant's registration
statement on Form S-1 (file no. 333-33086), as filed on
March 23, 2000.
3.2 Amended and Restated Bye-laws of the registrant,
incorporated by reference to Exhibit 3.2 of the registrant's
registration statement on Form S-1(A) (file no. 333-33086),
as filed on June 8, 2000.
4.1 Specimen common stock certificate of the registrant,
incorporated by reference to Exhibit 4.1 of the registrant's
registration statement on Form S-1/A (file no. 333-33086),
as filed on May 5, 2000.
10.1 Amended and Restated 1995 Stock Option Plan.
10.2 1997 Directors' Stock Option Plan, incorporated by reference
to Exhibit 10.2 of the registrant's registration statement
on Form S-1 (file no. 333-33086), as filed on March 23,
2000.
10.3 2000 Employee Stock Purchase Plan, incorporated by reference
to Exhibit 10.3 of the registrant's registration statement
on Form S-1 (file no. 333-33086), as filed on March 23,
2000.
10.4 Galileo Technology Ltd. 1997 Employees' Stock Option Plan.
10.5 Galileo Technology Ltd. 1997 GTI Stock Option Plan.
10.6 Sublease between Netscape Communications, Inc. and Marvell
Semiconductor, Inc. dated October 1, 1998, incorporated by
reference to Exhibit 10.4 of the registrant's registration
statement on Form S-1 (file no. 333-33086), as filed on
March 23, 2000.
10.7 First Amendment to Sublease between Netscape Communications,
Inc. and Marvell Semiconductor, Inc. dated October 1, 1999,
incorporated by reference to Exhibit 10.5 of the
registrant's registration statement on Form S-1 (file no.
333-33086), as filed on March 23, 2000.
10.8 Investors Rights Agreement dated September 10, 1999,
incorporated by reference to Exhibit 10.6 of the
registrant's registration statement on Form S-1 (file no.
333-33086), as filed on March 23, 2000.
10.9 Wafer Purchase Agreement by and between Marvell Technology
Group Ltd. and Taiwan Semiconductor Manufacturing
Corporation dated June 30, 1997, incorporated by reference
to Exhibit 10.7 of the registrant's registration statement
on Form S-1/A (file no. 333-33086), as filed on May 5, 2000.
10.10 Master Development, Purchasing and License Agreement between
Intel Corporation and Marvell Semiconductor, Inc. (portions
redacted pursuant to a request for confidential treatment
granted by the Securities Exchange Commission on June 26,
2000), incorporated by reference to Exhibit 10.8 of the
registrant's registration statement on Form S-1/A (file no.
333-33086), as filed on June 23, 2000.
10.11 Lease Agreement dated June 1, 2000 by and between Marvell
Semiconductor, Inc. and 525 Almanor LLC, incorporated by
reference to Exhibit 10.9 of the registrant's quarterly
report on Form 10-Q for the period ended July 29, 2000 as
filed on September 12, 2000.
10.12 Lease Agreement, dated June 30, 2000 by and between Galileo
Technology Ltd. and Zanker Development Co.
21.1 Subsidiaries of the registrant.
23.1 Consent of PricewaterhouseCoopers LLP, Independent
Accountants.
I-1