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Cavium Networks Announces Financial Results for Q4 2008

MOUNTAIN VIEW, Calif., January 28, 2009 – Cavium Networks (NASDAQ: CAVM), a leading provider of highly integrated semiconductor products that enable intelligent processing for networking, communications, storage, wireless and security applications, today announced financial results for the fourth quarter of 2008 ended December 31, 2008.

Revenue in the fourth quarter of 2008 was $22.2 million, a 9.6% sequential decrease from the $24.5 million reported for the third quarter of 2008 and an increase of 37.0% from the $16.2 million reported for the fourth quarter of last year.

Generally Accepted Accounting Principles (GAAP) Results
Net loss for the fourth quarter of 2008, on a GAAP basis, was a loss of $4.4 million, or $0.11 per share (diluted), compared to net income of $1.8 million, or $0.04 per diluted share in the third quarter of 2008, and net income of $2.0 million, or $0.05 per share in the fourth quarter of last year. Gross margins were 49.8% in the fourth quarter of 2008 compared to 58.8% in the third quarter of this year. Total cash and cash equivalents were $77.0 million at December 31, 2008.

Non-GAAP Results
Cavium Networks believes that the presentation of non-GAAP financial measures provides important supplemental information to management and investors regarding financial and business trends relating to the company's financial condition and results of operations. These measures should only be used to evaluate the Company’s results of operations in conjunction with the corresponding GAAP measures. Non-GAAP financial measures in the fourth quarter of 2008 exclude $5.1 million in stock-based compensation, amortization of acquired intangible assets, in-process R&D expense and adjustments related to the acquisitions. The reconciliation between GAAP and non-GAAP financial results is provided in the financial statements portion of this release.

Net income for the fourth quarter of 2008, on a non-GAAP basis, was $0.7 million, or $0.02 per share (diluted), compared with $4.6 million, or $0.11 per share (diluted) in the third quarter of 2008 and $2.9 million, or $0.07 per share (diluted) in the fourth quarter of last year. Gross margins, on a non-GAAP basis, were 55.1% in the fourth quarter of 2008 compared to 62.8% in the third quarter of this year.

“Customer demand for our products was weaker than originally expected this quarter, primarily in higher margin Enterprise and Data Center segments,” said Syed Ali, president and CEO of Cavium Networks. “The deteriorating global economic climate is clearly having an impact on our business, as our customers slow down orders and minimize inventory. Gross margins were also negatively impacted by product mix and lower sales. However, we continue to experience record levels of design win activity at Tier 1 customers, and are confident we are well positioned for the long term.”

Recent Highlights

November 5, 2008 - Cavium Networks was selected as a Deloitte’s Technology Fast 50 Winner.
November 18, 2008 - Cavium Networks was ranked among the Fastest Growing Companies in North America on Deloitte’s 2008 Technology Fast 500
December 16, 2008 - Cavium Networks won GSA’s 2008 Most Respected Emerging Public Semiconductor Company Award.
December 24, 2008 - Cavium Networks completes acquisition of W&W Communications, Inc.
January 6, 2009 – Cavium Networks demonstrates wireless HD video display at CES with multiple partners
January 12, 2009 - NETGEAR® PROSAFE® Security Router with 802.11n selects OCTEON
January 20, 2009 - French Service Provider SFR selects OCTEON™ for Fiber to the Home Service

Conference Call
Cavium Networks will broadcast its fourth quarter 2008 financial results conference call today, January 28, 2009 at 2 p.m. Pacific time (5 p.m. Eastern time). The conference call will be available via a live web cast on the investor relations section of the Cavium Networks website at http://www.caviumnetworks.com. Please access the website at least a few minutes prior to the start of the call in order to download and install any necessary audio software. An archived web cast replay of the call will be available on the web site for a limited period of time.

About Cavium Networks
Cavium Networks is a leading provider of highly integrated semiconductor products that enable intelligent processing in networking, communications, storage, wireless and security applications. Cavium Networks offers a broad portfolio of integrated, software compatible processors ranging in performance from 10 Mbps to 20 Gbps that enable secure, intelligent functionality in enterprise, data-center, broadband/consumer and access & service provider equipment. Cavium Networks processors are supported by ecosystem partners that provide operating systems, tool support, reference designs and other services. Cavium Networks principal offices are in Mountain View, California with design team locations in California, Massachusetts, India and Taiwan. For more information, please visit: http://www.caviumnetworks.com.