Cavium Networks Announces Financial Results for Q4 2009

MOUNTAIN VIEW, Calif. January 28, 2010 – Cavium Networks, Inc. (NASDAQ: CAVM), a leading provider of semiconductor products that enable intelligent processing for networking, communications and the connected home, today announced financial results for the fourth quarter of 2009 ended December 31, 2009.
Revenue in the fourth quarter of 2009 was $32.1 million, a 24% sequential increase from the $25.9 million reported for the third quarter of 2009 and an increase of 45% from the $22.2 million reported for the fourth quarter of last year. Our results for the fourth quarter were slightly favorable to the positive pre-announcement we made on December 17, 2009 regarding expectations for the quarter.

Generally Accepted Accounting Principles (GAAP) Results
Net loss for the fourth quarter of 2009, on a GAAP basis, was $4.5 million, or $0.11 per share, compared to a net loss of $4.2 million, or $0.10 per share in the third quarter of 2009, and net loss of $4.4 million, or $0.11 per diluted share in the fourth quarter of last year. Gross margins were 51.5% in the fourth quarter of 2009 compared to 51.5% in the third quarter of 2009 and 49.8% in the fourth quarter of 2008. Total cash and cash equivalents were $58.9 million at December 31, 2009.

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 2009 exclude expenses totaling $8.3 million related to stock-based compensation and related payroll expense, amortization of acquired intangible assets and acquisition related compensation expense and other acquisition related expenses. 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 2009, on a non-GAAP basis, was $3.8 million, or $0.08 per diluted share, compared with non-GAAP net income of $0.8 million, or $0.02 per share in the third quarter of 2009 and net income of $0.7 million, or $0.02 per diluted share in the fourth quarter of last year. Gross margins, on a non-GAAP basis, were 58.9% in the fourth quarter of 2009 compared to 55.7% in the third quarter of 2009.

“We had record sales this quarter due to growth across multiple markets, especially in the enterprise and data center markets. We had record bookings and design wins during the quarter. New product ramps are in early stages at a number of tier-1 customers and this is driving higher revenue and growth rates for us. Non-GAAP gross margins have continued to expand continuing the trend of last few quarters, and increased 320 basis points sequentially due to improved product mix, reduced product costs as well as improved manufacturing overhead absorption. The increased sales along with expanding gross margins significantly improved sequential operating performance. Non-GAAP operating margins increased from 4% in the third quarter to 12% this quarter, showing the leverage in our operating model.” said Syed Ali, president and CEO of Cavium Networks. “We have recently introduced a number of new products, including our Next Generation OCTEON™ II family of multi-core processors (from 1 to 32 cores), our NITROX DPI Family of Layer 7 Content Processors, as well as our new ECONA ARM-based processors network for the connected home and office applications and the PureVu family of products for highly interactive video applications and display. We demonstrated the ECONA and PureVu products at the CES show in January and customer response has been extremely positive”.

Recent News Highlights:

• Oct. 12, 2009 – Cavium Networks announced the demonstration of OCTEON™ multi-core MIPS64 storage processors at the Storage Networking World Conference in Phoenix, Arizona.


• Oct. 22, 2009 – Cavium Networks announced that it had been ranked among the fastest growing companies in North America on Deloitte’s Technology Fast 500™ list. Rankings are based on percentage of fiscal year revenue growth during the five year period from 2004–2008, during which time Cavium Networks grew revenue 1,069 percent.


• Nov 9, 2009 - Cavium Networks demonstrates netHD™ (Networked High Definition) Wi-Fi Reference Design for In-Home Networked Video Distribution at TelcoTV 2009.


• Nov 10, 2009 - Cavium Networks signs a definitive agreement to acquire MontaVista Software. The acquisition enables delivery of complete solutions for embedded device manufacturers and drives entry into high-growth commercial grade embedded Linux software market.


• Nov 17, 2009 - Cavium Networks announces the world’s fastest FIPS 140-2 Level 3 Certified Hardware Security Modules for government, healthcare & financial applications.


• Dec 17, 2009 - Cavium Networks announces positive upside guidance for Q4 2009.


• Dec 18, 2009, Cavium Completes acquisition MontaVista Software.


• Jan 6, 2010 - Cavium Networks announces a new family of PureVu™ single chip processors for mass market adoption in wireless displays, home video distribution, and video conferencing. The PureVu™ CNW5XXX family combines Cavium’s Super-Low-Latency (SLL) H.264 video processor, high performance NITROX security technology, and intelligent networking and packet processing capabilities in a fully integrated SoC. The high degree of integration will provide OEMs with a single chip solution to enable mass market adoption in devices such as flat panel TVs, Blu-ray players, notebook PCs and netbooks, gaming consoles, as well as SMB and SOHO video communication systems.


• Jan 6, 2010 - Cavium Networks announces an ultra compact Display MiniCard (DMC) for low power, high performance, and low latency wireless display capability for Notebook PCs and Netbooks.
• Jan 7, 2010 - Quanta Microsystems selects Cavium’s PureVu™ video processor for display MiniCard Modules targeting Notebook PCs and wireless displays.


• Jan 7, 2010 - Cavium Networks announced that D-Link, Compal Electronics, Accton, Zinwell, and others had selected Cavium’s PureVu™ video processors to offer wireless display and home video distribution products

Conference Call
Cavium Networks, Inc. will broadcast its fourth quarter 2009 financial results conference call today, January 28th, 2010, 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, and connected home applications. Cavium Networks offers a broad portfolio of integrated, software-compatible processors ranging in performance from 10 Mbps to 40 Gbps that enable secure, intelligent functionality in enterprise, data-center, broadband/consumer and access and 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, CA with design team locations in California, Massachusetts, India and Taiwan. For more information, please visit: http://www.caviumnetworks.com.

CAVIUM NETWORKS, INC. Unaudited GAAP Condensed Consolidated Statements of Operations                                                              (In thousands, except per share amounts)   Three Months Ended    December 31, 2009 September 30, 2009       Net revenue  $                 32,134  $            25,894 Cost of revenue                      15,592                12,567 Gross profit                      16,542                13,327 Operating expenses:          Research and development                      11,788                10,629      Sales, general and administrative                        9,341                 6,647         Total operating expenses                      21,129                17,276 Loss from operations                      (4,587)                (3,949) Other income (expense), net:         Interest expense                          (44)                    (54)     Interest income and other, net                         102                       4 Total other income (expense), net                           58                    (50)      Loss before provision (benefit) for income taxes                     (4,529)                (3,999)      Provision (benefit) for income taxes                            (2)                    167 Net loss   $                  (4,527)  $            (4,166) Net loss per common share, basic and diluted  $                   (0.11)  $              (0.10) Shares used in computing basic and diluted net loss per common share                     41,984                41,447 CAVIUM NETWORKS, INC. Unaudited Reconciliation of Non-GAAP Adjustments (In thousands)       Reconciliation of GAAP research and development expenses to           non-GAAP:         GAAP research and development expenses  $                 11,788  $            10,629           Stock-based compensation and related payroll taxes                     (1,575)                (1,522)           Acquisition related compensation expense                         (696)                  (754)           Acquisition-related expenses                         (208)                        -      Non-GAAP research and development expenses  $                   9,309  $              8,353 Reconciliation of GAAP sales, general and administrative expenses to           non-GAAP          GAAP sales, general and administrative expenses  $                   9,341  $              6,647           Stock-based compensation and related payroll taxes                     (1,606)                (1,491)           Acquisition-related expenses                      (1,009)                        -           Amortization of acquired intangibles                          (51)                    (35)           Acquisition related compensation expense                         (768)                    (18)      Non-GAAP sales, general and administrative expenses  $                   5,907  $              5,103

CAVIUM NETWORKS, INC. Unaudited Reconciliation of Non-GAAP Adjustments (In thousands, except per share data and percentages) Three Months Ended  Reconciliation of GAAP gross profit & margin to non-GAAP: December 31, 2009 September 30, 2009 Net revenue  $                    32,134  $                  25,894 GAAP gross profit                        16,542                      13,327 GAAP gross margin 51.5% 51.5%           Amortization of acquired intangibles:                 Cost of revenue                          2,281                        1,008           Stock-based compensation and related payroll taxes:                 Cost of revenue                             103                             96 Non-GAAP gross profit  $                    18,926  $                  14,431 Non-GAAP gross margin 58.9% 55.7% Three Months Ended  Reconciliation of GAAP loss from operations to non-GAAP: December 31, 2009 September 30, 2009 GAAP loss from operations  $                    (4,587)  $                   (3,949)           Amortization of acquired intangibles 2,332 1,043           Stock-based compensation and related payroll taxes 3,284 3,109           Acquisition-related expenses                           1,217                              -             Acquisition related compensation expense                           1,464                           772 Non-GAAP income  from operations  $                      3,710  $                       975 Non-GAAP income from operations as a percentage of revenue 11.5% 3.8% Three Months Ended  Reconciliation of GAAP net loss to non-GAAP: December 31, 2009 September 30, 2009 GAAP net loss  $                    (4,527)  $                   (4,166) Non-GAAP adjustments:       Stock-based compensation and related payroll taxes:           Cost of revenue 103 96           Research and development  1,575 1,522           Sales, general and administrative  1,606 1,491       Amortization of acquired intangibles:           Cost of revenue                          2,281                        1,008           Sales, general and administrative                                51                             35       Acquisition-related expenses                           1,217                              -         Acquisition related compensation expense  1,464 772      Total of non-GAAP adjustments 8,297 4,924 Non-GAAP net income   $                      3,770  $                       758 GAAP net loss per share (diluted)  $                      (0.11)  $                     (0.10)    Non-GAAP adjustments detailed above 0.19 0.12 Non-GAAP net income per share (diluted)  $                        0.08  $                      0.02 GAAP weighted average shares (diluted)                        41,984                      41,447    Non-GAAP share adjustment                          4,673                        4,528 Non-GAAP weighted average shares (diluted)                        46,657                      45,975

CAVIUM NETWORKS, INC. Unaudited GAAP Condensed Consolidated Balance Sheets (In thousands) As of December 31, 2009 September 30, 2009 Assets Current assets: Cash and cash equivalents  $                 58,918  $                    70,693 Accounts receivable, net                      21,958                        11,717 Inventories                     17,965                        18,313 Prepaid expenses and other current assets                       2,168                         2,941 Total current assets                   101,009                      103,664 Property and equipment, net                     14,972                         8,404 Intangible assets, net                     25,388                        13,120 Goodwill                     56,607                        13,027 Other assets                       1,819                            433 Total assets  $               199,795  $                  138,648 Liabilities and Stockholders' Equity  Current liabilities: Accounts payable  $                 10,784  $                      7,102 Accrued expenses and other current liabilities                       8,445                         3,081 Deferred revenue                     12,612                         1,444 Capital lease and technology license obligations, current                        3,271                         2,886 Total current liabilities                     35,112                        14,513 Capital lease and technology license obligations, net of current                        5,741                            449 Other non-current liabilities                       2,569                         1,665 Total liabilities                     43,422                        16,627 Stockholders' equity  Common stock                           44                              42 Additional paid-in capital                   234,946                      196,069 Accumulated deficit                   (78,617)                      (74,090) Total stockholders' equity                    156,373                      122,021 Total liabilities and stockholders' equity   $               199,795  $                  138,648