Cavium Networks Announces Financial Results for Q1 2010

MOUNTAIN VIEW, CA -- (MARKET WIRE) -- Apr 26, 2010 -- Cavium Networks, Inc. (NASDAQ: CAVM), a leading provider of highly integrated semiconductor products that enable intelligent processing for networking, communications, and the digital home, today announced financial results for the first quarter of 2010 ended March 31, 2010.

Revenue in the first quarter of 2010 was $ 41.6 million, a 30% sequential increase from the $32.1 million reported for the fourth quarter of 2009 and an increase of 104% from the $20.4 million reported for the first quarter of last year.

Generally Accepted Accounting Principles (GAAP) Results

Net loss for the first quarter of 2010, on a GAAP basis, was $ 3.1 million, or $0.07 per share, compared to a net loss of $4.5 million, or $0.11 per share in the fourth quarter of 2009, and net loss of $6.5 million, or $0.16 per diluted share in the first quarter of last year. Gross margins were 59.6% in the first quarter of 2010 compared to 51.5% in the fourth quarter of 2009 and 46.9% in the first quarter of 2009. Total cash and cash equivalents were $65.7 million at March 31, 2010.

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 first quarter of 2010 exclude expenses totaling $10.0 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 first quarter of 2010, on a non-GAAP basis, was $6.9 million, or $0.14 per diluted share, compared with non-GAAP net income of $3.8 million, or $0.08 per share in the fourth quarter of 2009. Gross margins, on a non-GAAP basis, were 63.4% in the first quarter of 2010 compared to 58.9% in the fourth quarter of 2009.

"Our record sales and strong sequential sales growth came from strength across multiple markets and geographies. We had record bookings again this quarter for both our chip and software businesses, which is an indicator of the strong trends we are experiencing. Furthermore, non-GAAP gross margins increased 450 basis points sequentially due to improved product mix and reduced manufacturing costs, and operating margins increased 470 basis points sequentially, which shows the continued leverage in our business model," said Syed Ali, president and CEO of Cavium Networks. "Design win traction was very strong, especially for recently introduced products including our Next Generation OCTEON™ II family of multi-core processors as well as our other key product families."

Recent News Highlights:

--  April 22, 2010 - Cavium Networks was ranked as the #1 Multi-core
    processor supplier by Heavy Reading Report.

--  April 22, 2010 - MontaVista showcased developer tools for multi-core
    development, Android-based devices, and industrial automation
    solutions.

--  April 14, 2010 - Cavium Networks demonstrated an OCTEON® processor
    based secure, scalable, content aware IP storage solution.

--  March 24, 2010 - Renesas and Cavium Networks established a strategic
    collaboration to deliver optimized reference designs for
    high-performance routers and switches.

--  March 22, 2010 - Cavium Networks and Wind River announced a partnership
    to develop future generations of Multi-core software solutions based on
    OCTEON processors.

--  March 17, 2010 - ZTE announced that they are deploying multiple,
    industry leading networking platforms based on Cavium Networks OCTEON
    processors.

--  March 16, 2010 - MontaVista Software was elected to the GENIVI Alliance
    board of directors, which is an automotive and consumer electronics
    industry association driving the development and adoption of an open
    In-vehicle Infotainment (IVI) reference platform.

--  February 15, 2010 - Cavium Networks introduced comprehensive, market
    leading LTE eNodeB and packet core solutions using OCTEON.

--  February 15, 2010 - Cavium Networks introduced innovative DPI protocol
    software for 3G/4G core networks based on OCTEON processors.

--  February 15, 2010 - Cavium Networks along with Continuous Computing and
    picoChip announced the industry's first complete end-to-end LTE
    Femtocell reference design.

--  February 11, 2010 - MontaVista's Montabello™ MID Platform won VME
    and Critical Systems magazine Editor's Choice Award for its rapid boot
    time, efficient power management, wireless connectivity, and common
    business applications for the Dell LatitudeON.

--  February 08, 2010 - Tata Elxsi Introduced a market-leading LTE software
    solution optimized for OCTEON Processors.

Conference Call

Cavium Networks, Inc. will broadcast its first quarter 2010 financial results conference call today, April 26th, 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 for networking, communications and the digital home. 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 Network's 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.

Note on Forward-Looking Statements

This press release may contain forward-looking statements regarding future events that involve risks and uncertainties. Readers are cautioned that these forward-looking statements are only predictions and may differ materially from actual future events or results. These forward-looking statements involve risks and uncertainties, as well as assumptions and current expectations. Our actual results and the timing of events could differ materially from those anticipated in such forward-looking statements as a result of these risks, uncertainties and assumptions. The risks and uncertainties that could cause our results to differ materially from those expressed or implied by such forward-looking statements include but are not limited to the rate of new design wins, acceptance by customers of Cavium's new product introductions, whether or not the company can continue to expand gross margins and operating margins, the rate at which existing design wins go into production, pricing pressures; general economic conditions; manufacturing difficulties; and other risks and uncertainties described more fully in our documents filed with or furnished to the Securities and Exchange Commission. More information about these and other risks that may impact Cavium's business are set forth in the "Risk Factors" section of our Form 10K filed with the Securities and Exchange Commission on March 1, 2010. All forward-looking statements in this press release are based on information available to us as of the date hereof and qualified in their entirety by this cautionary statement, and we assume no obligation to revise or update these forward-looking statements.

                          CAVIUM NETWORKS, INC.
      Unaudited GAAP Condensed Consolidated Statements of Operations
                 (In thousands, except per share amounts)


                                               Three Months Ended
                                      ------------------------------------
                                        March 31, 2010   December 31, 2009
                                      -----------------  -----------------

Net revenue                                                  $                    41,637    $                    32,134
Cost  of  revenue                                                                    16,842                          15,592
                                                                            -----------------    -----------------
Gross  profit                                                                          24,795                          16,542
                                                                            -----------------    -----------------
Operating  expenses:
        Research  and  development                                          13,987                          11,788
        Sales,  general  and
          administrative                                                            14,035                            9,341
                                                                            -----------------    -----------------
                Total  operating  expenses                                  28,022                          21,129
                                                                            -----------------    -----------------
Loss  from  operations                                                          (3,227)                        (4,587)
                                                                            -----------------    -----------------
Other  income  (expense),  net:
        Interest  expense                                                              (124)                              (44)
        Interest  income  and  other,  net                                  (112)                              102
                                                                            -----------------    -----------------
Total  other  income  (expense),  net                                    (236)                                58
                                                                            -----------------    -----------------
        Loss  before  provision  for  income
          taxes                                                                              (3,463)                        (4,529)
        Provision  (benefit)  for  income
          taxes                                                                                  (353)                                (2)
                                                                            -----------------    -----------------
Net  loss                                                            $                    (3,110)  $                    (4,527)
                                                                            =================    =================
Net  loss  per  common  share,  basic  and
  diluted                                                            $                      (0.07)  $                      (0.11)
Shares  used  in  computing  basic  and
  diluted  net  loss  per  common  share                              43,754                          41,984

                                                    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                                                  $                    13,987    $                    11,788
                    Stock-based  compensation
                      and  related  payroll  taxes                          (2,490)                        (1,575)
                    Acquisition-related
                      compensation  expenses                                      (536)                            (696)
                    Acquisition-related
                      expenses                                                                (302)                            (208)
                                                                            -----------------    -----------------
          Non-GAAP  research  and
            development  expenses                        $                    10,659    $                      9,309
                                                                            =================    =================
Reconciliation  of  GAAP  sales,  general
  and  administrative  expenses  to
  non-GAAP
        GAAP  sales,  general  and
          administrative  expenses                    $                    14,035    $                      9,341
                    Stock-based  compensation
                      and  related  payroll  taxes                          (2,452)                        (1,606)
                    Acquisition-related
                      expenses                                                                (553)                        (1,009)
                    Amortization  of  acquired
                      intangibles                                                          (128)                              (51)
                    Acquisition-related
                      compensation  expenses                                  (1,907)                            (768)
                                                                            -----------------    -----------------
          Non-GAAP  sales,  general  and
            administrative  expenses                  $                      8,995    $                      5,907
                                                                            -----------------    -----------------






                                                    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:                                        March  31,  2010      December  31,  2009
                                                                            -----------------    -----------------
Net  revenue                                                      $                    41,637    $                    32,134
GAAP  gross  profit                                                                24,795                          16,542
GAAP  gross  margin                                                                    59.6%                            51.5%
                    Acquisition-related
                      compensation  expenses:
                                Cost  of  revenue                                          239                                    -
                    Amortization  of  acquired
                      intangibles:
                                Cost  of  revenue                                      1,096                            2,281
                    Stock-based  compensation
                      and  related  payroll  taxes:
                                Cost  of  revenue                                          272                                103
                                                                            -----------------    -----------------
Non-GAAP  gross  profit                                  $                    26,402    $                    18,926
                                                                            =================    =================
Non-GAAP  gross  margin                                                            63.4%                            58.9%
                                                                            =================    =================
                                                                                              Three  Months  Ended
                                                                            ------------------------------------
Reconciliation  of  GAAP  loss  from
  operations  to  non-GAAP:                                March  31,  2010      December  31,  2009
                                                                            -----------------    -----------------
GAAP  loss  from  operations                          $                    (3,227)  $                    (4,587)
                    Amortization  of  acquired
                      intangibles                                                        1,224                            2,332
                    Stock-based  compensation
                      and  related  payroll  taxes                            5,214                            3,284
                    Acquisition-related
                      expenses                                                              1,094                            1,217
                    Acquisition-related
                      compensation  expenses                                    2,443                            1,464
                                                                            -----------------    -----------------
Non-GAAP  income  from  operations              $                      6,748    $                      3,710
                                                                            =================    =================
Non-GAAP  income  from  operations  as  a
  percentage  of  revenue                                                          16.2%                            11.5%
                                                                            =================    =================
                                                                                              Three  Months  Ended
                                                                            ------------------------------------
Reconciliation  of  GAAP  net  loss  to
  non-GAAP:                                                            March  31,  2010      December  31,  2009
                                                                            -----------------    -----------------
GAAP  net  loss                                                  $                    (3,110)  $                    (4,527)
Non-GAAP  adjustments:
            Stock-based  compensation  and
              related  payroll  taxes:
                    Cost  of  revenue                                                      272                                103
                    Research  and  development                                2,490                            1,575
                    Sales,  general  and
                      administrative                                                  2,452                            1,606
            Amortization  of  acquired
              intangibles:
                    Cost  of  revenue                                                  1,096                            2,281
                    Sales,  general  and
                      administrative                                                      128                                  51
            Acquisition-related  expenses                                    855                            1,217
            Acquisition-related
              compensation  expenses                                            2,682                            1,464
                                                                            -----------------    -----------------
            Total  of  non-GAAP  adjustments                              9,975                            8,297
                                                                            -----------------    -----------------
Non-GAAP  net  income                                      $                      6,865    $                      3,770
                                                                            =================    =================

GAAP  net  loss  per  share  (diluted)          $                      (0.07)  $                      (0.11)
                                                                            =================    =================
      Non-GAAP  adjustments  detailed
        above                                                                                    0.21                              0.19
Non-GAAP  net  income  per  share
  (diluted)                                                        $                        0.14    $                        0.08
                                                                            =================    =================

GAAP  weighted  average  shares
  (diluted)                                                                              43,754                          41,984
      Non-GAAP  share  adjustment                                            5,780                            4,673
                                                                            -----------------    -----------------
Non-GAAP  weighted  average  shares
  (diluted)                                                                              49,534                          46,657






                                                    CAVIUM  NETWORKS,  INC.
                      Unaudited  GAAP  Condensed  Consolidated  Balance  Sheets
                                                            (In  thousands)


                                                                                                          As  of
                                                                            ------------------------------------
                                                                                March  31,  2010      December  31,  2009
                                                                            -----------------    -----------------
Assets
Current  assets:
      Cash  and  cash  equivalents                    $                    65,716    $                    58,918
      Accounts  receivable,  net                                            25,835                          21,958
      Inventories                                                                      18,367                          17,965
      Prepaid  expenses  and  other  current
        assets                                                                                2,617                            2,168
                                                                            -----------------    -----------------
              Total  current  assets                                          112,535                        101,009
Property  and  equipment,  net                                            15,072                          14,972
Intangible  assets,  net                                                      24,112                          25,388
Goodwill                                                                                  56,312                          56,607
Other  assets                                                                            1,672                            1,819
                                                                            -----------------    -----------------
              Total  assets                                      $                  209,703    $                  199,795
                                                                            =================    =================

Liabilities  and  Stockholders'  Equity
Current  liabilities:
      Accounts  payable                                      $                    12,018    $                    10,784
      Accrued  expenses  and  other  current
        liabilities                                                                      8,196                            8,444
      Deferred  revenue                                                            15,549                          12,613
      Capital  lease  and  technology
        license  obligations,  current                                    3,344                            3,271
                                                                            -----------------    -----------------
              Total  current  liabilities                                  39,107                          35,112
Capital  lease  and  technology  license
  obligations,  net  of  current                                            4,619                            5,741
Other  non-current  liabilities                                          2,275                            2,569
                                                                            -----------------    -----------------
              Total  liabilities                                                  46,001                          43,422
                                                                            -----------------    -----------------

Stockholders'  equity
      Common  stock                                                                            44                                  44
      Additional  paid-in  capital                                      245,385                        234,946
      Accumulated  deficit                                                    (81,727)                      (78,617)
                                                                            -----------------    -----------------
              Total  stockholders'  equity                              163,702                        156,373
                                                                            -----------------    -----------------
              Total  liabilities  and
                stockholders'  equity                    $                  209,703    $                  199,795
                                                                            -----------------    -----------------
 

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