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UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, D.C.
    20549
 Form 10-K
  þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the year ended
    December 31,
    2009ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934   Commission file number:
    001-33435
 Cavium Networks, Inc.
 (Exact name of registrant as
    specified in its charter)
  Delaware

77-0558625(State or other jurisdiction of
    incorporation or organization)


(I.R.S. employer
    identification no.
)   805 East Middlefield Road
    Mountain View, CA 94043(650) 623-7000 (Address of principal
    executive offices)
  Securities registered pursuant to Section 12(b) of the
    Act:
  Title of Each Class

Name of Each Exchange on Which RegisteredCommon Stock, $0.001 par value(Title of Class)


The NASDAQ Stock Market LLC   Securities registered pursuant to Section 12(g) of the
    Act:
 None
  þ o
  o þ
  þ o
  Regulation S-T o o
  Regulation S-K Form 10-K Form 10-K. þ
  Rule 12b-2
  Large accelerated
    filer þ

Accelerated
    filer o

Non-accelerated
    filer o

Smaller reporting
    company o(Do not check if a smaller
    reporting company)   o þ
  and/or
  : 43,642,323
  Documents Incorporated by Reference: form 10-K Form 10-K.




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##### 





CAVIUM
    NETWORKS, INC.
    YEAR ENDED DECEMBER 31, 2009FORM 10-K
    ANNUAL REPORT
    TABLE OF CONTENTS
   
 PagePART I.Item 1.


Business


4Item 1A.


Risk Factors


12Item 1B.


Unresolved Staff Comments


28Item 2.


Properties


28Item 3.


Legal Proceedings


28Item 4.


Reserved


28PART II.Item 5.


Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities


28Item 6.


Selected Financial Data


30Item 7.


Managements Discussion and Analysis of
    Financial Condition and Results of Operations


32Item 7A.


Quantitative and Qualitative Disclosures about
    Market Risk


46Item 8.


Financial Statements and Supplementary Data


47Item 9.


Changes In and Disagreements with Accountants on
    Accounting and Financial Disclosure


79Item 9A.


Controls and Procedures


79Item 9B.


Other Information


80PART III.Item 10.


Directors, Executive Officers and Corporate
    Governance


80Item 11.


Executive Compensation


80Item 12.


Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters


80Item 13.


Certain Relationships and Related Transactions,
    and Director Independence


81Item 14.


Principal Accountant Fees and Services


81PART IV.Item 15.


Exhibits and Financial Statement Schedules


81Signatures


82EX-21.1EX-23.1EX-31.1EX-31.2EX-32.1   2




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Forward
    Looking Statements
  Form 10-K Form 10-K Form 10-K
 3




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PART I  Item 1.
    Business  Overview
      Industry
    Background
     4




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Products
  Octeon ® Octeon
    Plus ® Octeon
    II ® ,

    Nitrox ® Pure
    Vu TM
     5




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tm tm
  tm
 6




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Customers
      Sales and
    Marketing
      Manufacturing
    Integrated Circuit Fabrication.
 7




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Assembly and Test.
  Quality Assurance.
  Research
    and Development
    Business
    Combinations
   8




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Intellectual
    Property
                 9




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Competition
          Backlog
   10




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##### Table of Contents



Geographic
    Information
    Employees
    Executive
    Officers of the Registrant
    Syed B. Ali

51

President, Chief Executive Officer, Director and Chairman of the
    Board of DirectorsArthur D. Chadwick

53

Vice President of Finance and Administration, Chief Financial
    Officer and SecretaryAnil K. Jain

53

Corporate Vice President, IC EngineeringRajiv Khemani

42

Vice President and General Manager of Networking and
    Communications Division   Syed B. Ali
  Arthur D. Chadwick
  Anil K. Jain
  Rajiv Khemani
 11




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Corporate
    Information
  (650) 623-7000. Form 10-K. Form 10-K
  Available
    Information
  Form 10-K, Form 10-Q, Form 8-K, http://www.caviumnetworks.com,
  Item 1A.
    Risk
    Factors  The following risks and uncertainties may have a material
    adverse effect on our business, financial condition or results
    of operations. Investors should carefully consider the risks
    described below before making an investment decision. The risks
    described below are not the only ones we face. Additional risks
    not presently known to us or that we currently believe are
    immaterial may also significantly impair our business
    operations. Our business could be harmed by any of these risks.
    The trading price of our common stock could decline due to any
    of these risks, and investors may lose all or part of their
    investment.
  Risks
    Related to Our Business and Industry
  We
    have a limited history of profitability, and we may not achieve
    or sustain profitability in the future, on a quarterly or annual
    basis.
    We
    face intense competition and expect competition to increase in
    the future, which could reduce our revenue and customer
    base.
   12




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
    our success in identifying new and emerging markets,
    applications and technologies;
    our products performance and cost effectiveness relative
    to that of our competitors products;
    our ability to deliver products in large volume on a timely
    basis at a competitive price;
    our success in utilizing new and proprietary technologies to
    offer products and features previously not available in the
    marketplace;
    our ability to recruit design and application engineers and
    sales and marketing personnel; and
    our ability to protect our intellectual property.    Our
    customers may cancel their orders, change production quantities
    or delay production, and if we fail to forecast demand for our
    products accurately, we may incur product shortages, delays in
    product shipments or excess or insufficient product
    inventory.
   13




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Adverse
    changes in general economic or political conditions in any of
    the major countries in which we do business could adversely
    affect our operating results.
    We
    receive a substantial portion of our revenues from a limited
    number of customers, and the loss of, or a significant reduction
    in, orders from one or a few of our major customers would
    adversely affect our operations and financial
    condition.
    
    our agreements with our customers do not require them to
    purchase a minimum quantity of our products;
    some of our customers can stop incorporating our products into
    their own products with limited notice to us and suffer little
    or no penalty; and
    many of our customers have pre-existing or concurrent
    relationships with our current or potential competitors that may
    affect the customers decisions to purchase our products.     14




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We
    expect our operating results to fluctuate.
      
    our ability to retain, recruit and hire key executives,
    technical personnel and other employees in the positions and
    numbers, and with the experience and capabilities that we need;
    fluctuations in demand, sales cycles, product mix and prices for
    our products;
    the timing of our product introductions, and the variability in
    lead time between the time when a customer begins to design in
    one of our products and the time when the customers end
    system goes into production and they begin purchasing our
    products;
    the forecasting, scheduling, rescheduling or cancellation of
    orders by our customers;
    our ability to successfully define, design and release new
    products in a timely manner that meet our customers needs;
    changes in manufacturing costs, including wafer, test and
    assembly costs, mask costs, manufacturing yields and product
    quality and reliability;
    the timing and availability of adequate manufacturing capacity
    from our manufacturing suppliers;
    the timing of announcements by our competitors or us;
    future accounting pronouncements and changes in accounting
    policies;
    volatility in our stock price, which may lead to higher stock
    compensation expenses;
    general economic and political conditions in the countries where
    we operate or our products are sold or used; costs associated
    with litigation, especially related to intellectual property; and
    productivity and growth of our sales and marketing force.    We may
    not sustain our growth rate, and we may not be able to manage
    any future growth effectively.
      
    recruit, hire, train and manage additional qualified engineers
    for our research and development activities, especially in the
    positions of design engineering, product and test engineering,
    and applications engineering;
    enhance our information technology support for enterprise
    resource planning and design engineering by adapting and
    expanding our systems and tool capabilities, and properly
    training new hires as to their use;
    expand our administrative, financial and operational systems,
    procedures and controls; and
    add additional sales personnel and expand sales offices. 15




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The
    average selling prices of products in our markets have
    historically decreased over time and will likely do so in the
    future, which could harm our revenues and gross
    profits.
    We may
    be unsuccessful in developing and selling new products or in
    penetrating new markets.
    
    timely and efficient completion of process design and transfer
    to manufacturing, assembly and test processes;
    the quality, performance and reliability of the product; and
    effective marketing, sales and service.    Fluctuations
    in the mix of products sold may adversely affect our financial
    results.
    The
    semiconductor and communications industries have historically
    experienced significant fluctuations with prolonged downturns,
    which could impact our operating results, financial condition
    and cash flows
   16




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Our
    products must meet exact specifications, and defects and
    failures may occur, which may cause customers to return or stop
    buying our products.
    We may
    have difficulty selling our products if our customers do not
    design our products into their systems, and the nature of the
    design process requires us to incur expenses prior to
    recognizing revenues associated with those expenses which may
    adversely affect our financial results.
     17




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
    our customers usually require a comprehensive technical
    evaluation of our products before they incorporate them into
    their designs;
    it can take from nine months to three years from the time our
    products are selected to commence commercial shipments; and our
    customers may experience changed market conditions or product
    development issues. The resources devoted to product development
    and sales and marketing may not generate material revenue for
    us, and from time to time, we may need to write off excess and
    obsolete inventory if we have produced product in anticipation
    of expected demand. We may spend resources on the development of
    products that our customers may not adopt. If we incur
    significant expenses and investments in inventory in the future
    that we are not able to recover, and we are not able to
    compensate for those expenses, our operating results could be
    adversely affected. In addition, if we sell our products at
    reduced prices in anticipation of cost reductions but still hold
    higher cost products in inventory, our operating results would
    be harmed.    If
    customers do not believe our products solve a critical need, our
    revenues will decline.
      In the
    event we terminate one of our distributor arrangements, it could
    lead to a loss of revenues and possible product
    returns.
    We
    rely on our ecosystem partners to enhance our product offerings
    and our inability to continue to develop or maintain such
    relationships in the future would harm our ability to remain
    competitive.
   18




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The
    loss of any of our key personnel could seriously harm our
    business, and our failure to attract or retain specialized
    technical, management or sales and marketing talent could impair
    our ability to grow our business.
            We
    have a limited operating history, and we may have difficulty
    accurately predicting our future revenues for the purpose of
    appropriately budgeting and adjusting our
    expenses.
   19




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Some
    of our operations and a significant portion of our customers and
    contract manufacturers are located outside of the United States,
    which subjects us to additional risks, including increased
    complexity and costs of managing international operations and
    geopolitical instability.
    
    increased complexity and costs of managing international
    operations;
    longer and more difficult collection of receivables;
    difficulties in enforcing contracts generally;
    geopolitical and economic instability and military conflicts;
    limited protection of our intellectual property and other assets;
    compliance with local laws and regulations and unanticipated
    changes in local laws and regulations, including tax laws and
    regulations;
    trade and foreign exchange restrictions and higher tariffs;
    travel restrictions;
    timing and availability of import and export licenses and other
    governmental approvals, permits and licenses, including export
    classification requirements;
    foreign currency exchange fluctuations relating to our
    international operating activities;
    transportation delays and limited local infrastructure and
    disruptions, such as large scale outages or interruptions of
    service from utilities or telecommunications providers;
    difficulties in staffing international operations;
    heightened risk of terrorism;
    local business and cultural factors that differ from our normal
    standards and practices;
    differing employment practices and labor issues;
    regional health issues (e.g., SARS) and natural disasters; and
    work stoppages.  We
    outsource our wafer fabrication, assembly, testing, warehousing
    and shipping operations to third parties, and rely on these
    parties to produce and deliver our products according to
    requested demands in specification, quantity, cost and
    time.
     20




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just-in-time
  Any
    increase in the manufacturing cost of our products could reduce
    our gross margins and operating profit.
       21




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If we
    fail to maintain an effective system of internal controls, we
    may not be able to accurately report our financial results or
    prevent fraud.
    Our
    acquisition strategy may result in unanticipated accounting
    charges or otherwise adversely affect our results of operations,
    and result in difficulties in assimilating and integrating the
    operations, personnel, technologies and products of acquired
    companies or businesses, or be dilutive to existing
    shareholders.
    We
    rely on third-party technologies for the development of our
    products and our inability to use such technologies in the
    future would harm our ability to remain
    competitive.
   22




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Our
    failure to protect our intellectual property rights adequately
    could impair our ability to compete effectively or to defend
    ourselves from litigation, which could harm our business,
    financial condition and results of operations.
  U.S.-based
      and/or and/or and/or
  Assertions
    by third parties of infringement by us of their intellectual
    property rights could result in significant costs and cause our
    operating results to suffer.
   23




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
    stop selling products or using technology that contain the
    allegedly infringing intellectual property;
    lose the opportunity to license our technology to others or to
    collect royalty payments based upon successful protection and
    assertion of our intellectual property against others; incur
    significant legal expenses;
    pay substantial damages to the party whose intellectual property
    rights we may be found to be infringing;
    redesign those products that contain the allegedly infringing
    intellectual property; or
    attempt to obtain a license to the relevant intellectual
    property from third parties, which may not be available on
    reasonable terms or at all.      Our
    third-party contractors are concentrated primarily in Asia, an
    area subject to earthquake and other risks. Any disruption to
    the operations of these contractors could cause significant
    delays in the production or shipment of our
    products.
    We may
    experience difficulties in transitioning to new wafer
    fabrication process technologies or in achieving higher levels
    of design integration, which may result in reduced manufacturing
    yields, delays in product deliveries and increased
    expenses.
  product-by-product
 24




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Our
    investment portfolio may become impaired by further
    deterioration of the capital markets.
      We may
    need to raise additional capital, which might not be available
    or which, if available, may be on terms that are not favorable
    to use.
    Our
    future effective tax rates could be affected by the allocation
    of our income among different geographic regions, which could
    affect our future operating results, financial condition and
    cash flows.
    We may
    incur impairments to goodwill or long-lived
    assets.
       25




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Risks
    Related to our Common Stock
  The
    market price of our common stock may be volatile, which could
    cause the value of your investment to decline.
    
    quarterly variations in our results of operations or those of
    our competitors;
    general economic conditions and slow or negative growth of
    related markets;
    announcements by us or our competitors of design wins,
    acquisitions, new products, significant contracts, commercial
    relationships or capital commitments;
    our ability to develop and market new and enhanced products on a
    timely basis;
    commencement of, or our involvement in, litigation;
    disruption to our operations;
    the emergence of new sales channels in which we are unable to
    compete effectively;
    any major change in our board of directors or management;
    changes in financial estimates including our ability to meet our
    future revenue and operating profit or loss projections;
    changes in governmental regulations; and
    changes in earnings estimates or recommendations by securities
    analysts.    Future
    sales of our common stock in the public market could cause our
    stock price to fall.
    Form S-8 Form S-8
 26




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A
    limited number of stockholders may have the ability to influence
    the outcome of director elections and other matters requiring
    stockholder approval.
    Delaware
    law and our amended and restated certificate of incorporation
    and bylaws contain provisions that could delay or discourage
    takeover attempts that stockholders may consider
    favorable.
    
    the division of our board of directors into three classes;
    the right of the board of directors to elect a director to fill
    a vacancy created by the expansion of the board of directors or
    due to the resignation or departure of an existing board member;
    the prohibition of cumulative voting in the election of
    directors, which would otherwise allow less than a majority of
    stockholders to elect director candidates;
    the requirement for the advance notice of nominations for
    election to the board of directors or for proposing matters that
    can be acted upon at a stockholders meeting;
    the ability of our board of directors to alter our bylaws
    without obtaining stockholder approval;
    the ability of the board of directors to issue, without
    stockholder approval, up to 10,000,000 shares of preferred
    stock with terms set by the board of directors, which rights
    could be senior to those of our common stock;
    the elimination of the rights of stockholders to call a special
    meeting of stockholders and to take action by written consent in
    lieu of a meeting;
    the required approval of at least
    662/3%
    of the shares entitled to vote at an election of directors to
    adopt, amend or repeal our bylaws or repeal the provisions of
    our amended and restated certificate of incorporation regarding
    the election and removal of directors and the inability of
    stockholders to take action by written consent in lieu of a
    meeting; and
    the required approval of at least a majority of the shares
    entitled to vote at an election of directors to remove directors
    without cause.   27




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Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties    Item 3.
    Legal
    Proceedings  Form 10-K,
  Item 4.
    Reserved Part II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities  Market
    Information for Common Stock
      High

LowFirst Quarter 2009

$
12.44


$
7.61Second Quarter 2009

$
17.53


$
11.40Third Quarter 2009

$
22.03


$
16.13Fourth Quarter 2009

$
24.41


$
18.52First Quarter 2008

$
23.20


$
14.22Second Quarter 2008

$
26.10


$
16.32Third Quarter 2008

$
20.71


$
12.33Fourth Quarter 2008

$
14.42


$
8.88  28




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Dividend
    Policy
    Stock
    Performance Graph(1)
    
  5/2/2007


12/31/2007


12/31/2008


12/31/2009Cavium Networks



100.0




139.9




63.9




144.9Nasdaq Composite Index



100.0




103.7




61.7




88.7Nasdaq Computer Index



100.0




115.8




61.8




105.5   (1)
    
    This Section is not soliciting material, is not
    deemed filed with the SEC and is not to be
    incorporated by reference in any filing of the Company under the
    Securities Act of 1933, as amended, or the Securities Exchange
    Act of 1934 Act, as amended, whether made before or after
    the date hereof and irrespective of any general incorporation
    language in any such filing.  Recent
    Sales of Unregistered Securities
  (a)
    Sales of
    Unregistered Securities   29




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(b)
    Use of
    Proceeds from Public Offering of Common Stock  Form S-1 No. 333-140660),
  (c)
    Purchases
    of Equity Securities by the Issuer and Affiliated
    Purchasers    Item 6.
    Selected
    Financial Data  Form 10-K. Form 10-K. Form 10-K.
  Year Ended December 31,2009


2008


2007


2006


2005(In thousands, except per share data)Consolidated Statements of Operations Data:Net revenue

$
101,214


$
86,609


$
54,203


$
34,205


$
19,377Cost of revenue(1)(2)


51,112



35,639



19,898



13,092



7,865Gross profit


50,102



50,970



34,305



21,113



11,512Operating expenses:Research and development(2)


42,682



27,180



19,548



18,651



16,005Sales, general and administrative(2)


28,651



22,111



14,688



10,058



6,840In-process research and development






1,319











Total operating expenses


71,333



50,610



34,236



28,709



22,845Income (loss) from operations


(21,231
)


360



69



(7,596
)


(11,333
) 30




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Year Ended December 31,2009


2008


2007


2006


2005(In thousands, except per share data)Other income (expense), net:Interest expense


(244
)


(499
)


(622
)


(707
)


(183
)Warrant revaluation expense










(573
)


(467
)


(411
)Interest income and other


330



2,576



3,458



345



355Total other income (expense), net


86



2,077



2,263



(829
)


(239
)Income (loss) before income tax expense and cumulative effect of
    change in accounting principle


(21,145
)


2,437



2,332



(8,425
)


(11,572
)Income tax expense


249



930



142



560



Income (loss) before cumulative effect of change in accounting
    principle


(21,394
)


1,507



2,190



(8,985
)


(11,572
)Cumulative effect of change in accounting principle


















(100
)Net income (loss)

$
(21,394
)

$
1,507


$
2,190


$
(8,985
)

$
(11,672
)Net income (loss) per common share, basic

$
(0.52
)

$
0.04


$
0.08


$
(1.11
)

$
(1.59
)Shares used in computing basic net income (loss) per common share


41,435



40,385



29,006



8,066



7,319Net income (loss) per common share, diluted

$
(0.52
)

$
0.04


$
0.07


$
(1.11
)

$
(1.59
)Shares used in computing diluted net income (loss) per common
    share


41,435



42,566



32,432



8,066



7,319     (1)
    
    Includes acquired intangible asset amortization of $5,381,
    $1,737, $860, $1,116, and $1,007, in the years ended
    December 31, 2009, 2008, 2007, 2006, and 2005, respectively.(2)
    
    Includes stock-based compensation expense as follows:  Year Ended December 31,2009(3)

2008(3)

2007(3)

2006(3)

2005(In thousands)Cost of revenue

$
373


$
179


$
43


$
9


$
Research and development


5,574



2,684



805



396



10Sales, general and administrative


5,780



3,194



1,021



340



75Total stock-based compensation expense

$
11,727


$
6,057


$
1,869


$
745


$
85   (3)
    
    We applied the accounting guidance requiring the recognition of
    stock-based compensation expense beginning in the year ended
    2006.  31




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Year Ended December 31,2009

2008

2007

2006

2005(In thousands)Consolidated Balance Sheet Data:Cash and cash equivalents

$
58,918


$
77,027


$
98,462


$
10,154


$
7,879Working capital


65,897



90,335



105,048



11,689



6,160Total assets


199,795



151,164



134,610



29,962



20,219Preferred stock warrant liability














701



1,184Capital lease and technology license obligations


9,012



4,735



8,530



7,580



3,087Other non-current liabilities


2,569



1,162







39



74Convertible preferred stock














72,437



61,820Common stock and additional paid-in capital


234,990



185,784



175,580



3,740



1,261Total stockholders equity (deficit)

$
156,373


$
128,561


$
116,850


$
(57,180
)

$
(50,674
)   Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  The following discussion should be read in conjunction with
    the Consolidated Financial Statements and the related notes that
    appear elsewhere in the document.
  The information in this Annual Report on
    Form 10-K
    contains forward-looking statements within the meaning of
    Section 27A of the Securities Act of 1933, as amended
    (Securities Act), and Section 21E of the
    Securities Exchange Act of 1934, as amended (Exchange
    Act), which are subject to the safe harbor
    created by those sections. Forward-looking statements are based
    on our managements beliefs and assumptions and on
    information currently available to our management. In some
    cases, you can identify forward-looking statements by terms such
    as may, will, should,
    could, would, estimate,
    project, predict, potential,
    continue, strategy, believe,
    anticipate, plan, expect,
    intend and similar expression intended to identify
    forward-looking statements. These statements involve known and
    unknown risks, uncertainties and other factors, which may cause
    our actual results, performance, time frames or achievements to
    be materially difference from any future results, performance,
    time frames or achievements expressed or implied by the
    forward-looking statements. We discuss many of these risks,
    uncertainties and other factors in this Annual Report on
    Form 10-K
    in greater detail under the heading Risk Factors.
    Given these risks, uncertainties and other factors, you should
    not place undue reliance on these forward-looking statements.
    Also, these forward-looking statements represent our estimates
    and assumptions only as of the date of this filing. You should
    read this Annual Report on
    Form 10-K
    completely and with the understanding that our actual future
    results may be materially different from what we expect. We
    hereby qualify our forward-looking statements by these
    cautionary statements. Except as required by law, we assume no
    obligation to update these forward-looking statements publicly,
    or to update the reasons actual results could differ materially
    from those anticipated in these forward-looking statements, even
    if new information becomes available in the future.
  Octoen ® Octoen
    Plus ® Octoen
    II ® ,

    Nitrox ® Pure
    Vu TM
  Overview
   32




---



##### Table of Contents



® ®
           33




---



##### Table of Contents



Key
    Business Metrics
  Design Wins.
  Pricing and Margins.
  Sales Volume.
  Customer Product Life Cycle.
  Critical
    Accounting Policies and Estimates
     34




---



##### Table of Contents




    revenue recognition;
    stock-based compensation;
    inventory valuation;
    accounting for income taxes;
    mask costs;
    business combinations; and
    goodwill and purchased intangible assets.  Revenue
    Recognition
            Stock-Based
    Compensation
   35




---



##### Table of Contents



Inventory
    Valuation
    Accounting
    for Income Taxes
          Mask
    Costs
   36




---



##### Table of Contents



Business
    Combinations
    Goodwill
    and Purchased Intangible Assets
    Results
    of Operations
  Net Revenue.
   37




---



##### Table of Contents



Year Ended December 31,2009

2008

2007Percentage of total revenueCisco


24
%


29
%


23
%Actiontec


10



*



*F5 Networks


*



11



18Sumitomo


*



11



*     *
    
    Represents less than 10% of consolidated net revenue        Year Ended December 31,2009


2008


2007(In thousands)United States

$
40,623


$
44,787


$
32,748Hong Kong


18,231



3,643



500Taiwan


15,224



11,533



10,500Japan


10,802



11,559



2,732China


5,958



6,206



3,367Other countries


10,376



8,881



4,356Total

$
101,214


$
86,609


$
54,203   Cost of Revenue and Gross Margin.
 38




---



##### Table of Contents



12-month
    For the Year Ended December 31,2009


2008


2007(In thousands)Net revenue

$
101,214


$
86,609


$
54,203Cost of revenue


51,112



35,639



19,898Gross Profit

$
50,102


$
50,970


$
34,305Gross Margin


49.5
%


58.9
%


63.3
%  39




---



##### Table of Contents



Research and Development Expenses.
    For the Year Ended December 31,2009

2008

2007(In thousands)Research and development expenses

$
42,682


$
27,180


$
19,548Percent of total revenue


42.2
%


31.4
%


36.1
%   Sales, General and Administrative
    Expenses.
  For the Year Ended December 31,2009

2008

2007(In thousands)Sales, general and administrative

$
28,651


$
22,111


$
14,688Percent of total revenue


28.3
%


25.5
%


27.1
%   Other Income (Expense), Net.
  For the Year Ended December 31,2009


2008


2007(In thousands)Interest income and other

$
330


$
2,576


$
3,458Interest expense


(244
)


(499
)


(622
)Warrant revaluation expense










(573
)Total other income (expense), net

$
86


$
2,077


$
2,263  40




---



##### Table of Contents



Provision for Income Taxes.
  For the Year Ended December 31,2009

2008

2007(In thousands)Income (loss) before income taxes

$
(21,145
)

$
2,437


$
2,332Income tax expense


249



930



142Effective tax rate


(1.2
)%


38.2
%


6.1
%     Fiscal
    2009 Compared to Fiscal 2008
  Net Revenue.
    Cost of Revenue and Gross Margin.
  Research and Development Expenses.
  Sales, General and Administrative
    Expenses.
  Income Tax Expense.
  Other Income (Expense), Net.
 41




---



##### Table of Contents



Fiscal
    2008 Compared to Fiscal 2007
  Net Revenue.
    Cost of Revenue and Gross Margin.
  Research and Development Expenses.
  Sales, General and Administrative
    Expenses.
  In-process research and development. in-process
  Income Tax Expense.
  Other Income (Expense), Net.
 42




---



##### Table of Contents



Quarterly
    Results of Operations
    Quarter Ended2009


2008Dec. 31


Sep. 30


Jun. 30


Mar. 31


Dec. 31


Sep. 30


Jun. 30


Mar. 31(In thousands, except per share data)Net revenue

$
32,134


$
25,894


$
22,804


$
20,382


$
22,180


$
24,525


$
21,562


$
18,342Cost of revenue


15,592



12,567



12,139



10,814



11,145



10,099



7,808



6,587Gross profit


16,542



13,327



10,665



9,568



11,035



14,426



13,754



11,755Operating expenses:Research and development


11,788



10,629



10,274



9,991



8,306



6,593



6,461



5,820Sales, general and administrative


9,341



6,647



6,526



6,137



6,158



5,944



5,454



4,555In-process research and development


















1,319











Total operating expenses


21,129



17,276



16,800



16,128



15,783



12,537



11,915



10,375Income (loss) from operations


(4,587
)


(3,949
)


(6,135
)


(6,560
)


(4,748
)


1,889



1,839



1,380Other income (expense), net:Interest expense


(44
)


(54
)


(67
)


(79
)


(96
)


(115
)


(135
)


(153
)Interest income and other


102



4



90



134



476



499



609



992Total other income (expense), net


58



(50
)


23



55



380



384



474



839Income (loss) before income tax expense


(4,529
)


(3,999
)


(6,112
)


(6,505
)


(4,368
)


2,273



2,313



2,219Income tax (benefit) expense


(2
)


167



56



28



(11
)


454



240



247Net income (loss)

$
(4,527
)

$
(4,166
)

$
(6,168
)

$
(6,533
)

$
(4,357
)

$
1,819


$
2,073


$
1,972Net income (loss) per common share, basic and diluted

$
(0.11
)

$
(0.10
)

$
(0.15
)

$
(0.16
)

$
(0.11
)

$
0.04


$
0.05


$
0.05   Liquidity
    and Capital Resources
   43




---



##### Table of Contents



Year Ended December 31,2009

2008

2007(In thousands)Working capital

$
65,897


$
90,335


$
105,048Cash and cash equivalents


58,918



77,027



98,462     Year Ended December 31,2009

2008

2007(In thousands)Net cash (used in) provided by operating activities

$
(375
)

$
10,627


$
6,176Net cash used in investing activities


(17,047
)


(29,120
)


(5,772
)Net cash (used in) provided by financing activities


(687
)


(2,942
)


87,904   Cash
    Flows from Operating Activities
      Cash
    Flows from Investing Activities
      Cash
    Flows from Financing Activities
     44




---



##### Table of Contents



Indemnities
    Off-Balance
    Sheet Arrangements
    Contractual
    Obligations
    Payments Due by PeriodLess than








More than1 Year


1 to 2 Years


3 to 5 Years


5 Years


TotalOperating lease obligations

$
2,846


$
3,512


$
310


$



$
6,668Capital lease obligations


3,544



5,942











9,486Purchase obligations


510















510Total

$
6,900


$
9,454


$
310


$



$
16,664        45




---



##### Table of Contents



Recent
    Accounting Pronouncements
    Item 7A.Quantitative
    and Qualitative Disclosure About Market Risk
  Foreign
    Currency Risk
    Interest
    Rate Risk
   46




---



##### Table of Contents



Item 8.
    Financial
    Statements and Supplementary Data  INDEX TO
    CONSOLIDATED FINANCIAL STATEMENTS
    Report of Independent Registered Public
    Accounting Firm


48Consolidated Balance Sheets


49Consolidated Statements of Operations


50Consolidated Statements of Changes in Mandatorily
    Redeemable Convertible Preferred Stock and Stockholders
    Equity (Deficit)


51Consolidated Statements of Cash Flows


52Notes to Consolidated Financial Statements


53  47




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  To the Board
    of Directors and
    Stockholders of Cavium Networks, Inc.
  Internal Control 
    Integrated Framework
           San Jose,
    California
    March 1, 2010
 48




---



##### Table of Contents



CAVIUM
    NETWORKS, INC.



CONSOLIDATED
    BALANCE SHEETS  As of December 31,2009


2008(In thousands, except share and per share data)ASSETSCurrent assets:Cash and cash equivalents

$
58,918


$
77,027Accounts receivable, net of allowances of $367 and $203,
    respectively


21,958



14,054Inventories


17,965



17,281Prepaid expenses and other current assets


2,168



1,298Total current assets


101,009



109,660Property and equipment, net


14,972



11,115Intangible assets, net


25,388



16,958Goodwill


56,607



12,925Other assets


1,819



506Total assets

$
199,795


$
151,164LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
10,784


$
7,309Accrued expenses and other current liabilities


8,444



7,697Deferred revenue


12,613



1,700Capital lease and technology license obligations, current portion


3,271



2,619Total current liabilities


35,112



19,325Capital lease and technology license obligations, net of current
    portion


5,741



2,116Other non-current liabilities


2,569



1,162Total liabilities


43,422



22,603Commitments and contingencies (Note 12)Stockholders equityPreferred stock, par value $0.001:10,000,000 shares authorized, no shares issued and
    outstanding as of December 31, 2009 and 2008






Common stock, par value $0.001:200,000,000 shares authorized; 43,507,161 and
    41,183,010 shares issued and outstanding; as of
    December 31, 2009 and 2008, respectively


44



41Additional paid-in capital


234,946



185,743Accumulated deficit


(78,617
)


(57,223
)Total stockholders equity


156,373



128,561Total liabilities and stockholders equity

$
199,795


$
151,164    49




---



##### Table of Contents



CAVIUM
    NETWORKS, INC.



CONSOLIDATED
    STATEMENTS OF OPERATIONS  Year Ended December 31,2009


2008


2007(In thousands, except per share data)Net revenue

$
101,214


$
86,609


$
54,203Cost of revenue


51,112



35,639



19,898Gross profit


50,102



50,970



34,305Operating expenses:Research and development


42,682



27,180



19,548Sales, general and administrative


28,651



22,111



14,688In-process research and development






1,319



Total operating expenses


71,333



50,610



34,236Income (loss) from operations


(21,231
)


360



69Other income (expense), net:Interest expense


(244
)


(499
)


(622
)Interest income and other


330



2,576



3,458Warrant revaluation expense










(573
)Total other income (expense), net


86



2,077



2,263Income (loss) before income tax expense


(21,145
)


2,437



2,332Income tax expense


249



930



142Net income (loss)

$
(21,394
)

$
1,507


$
2,190Net income (loss) per common share, basic

$
(0.52
)

$
0.04


$
0.08Shares used in computing basic net income (loss) per common share


41,435



40,385



29,006Net income (loss) per common share, diluted

$
(0.52
)

$
0.04


$
0.07Shares used in computing diluted net income (loss) per common
    share


41,435



42,566



32,432    50




---



##### Table of Contents



CAVIUM
    NETWORKS, INC.



CONSOLIDATED
    STATEMENTS OF CHANGES IN MANDATORILY REDEEMABLE

CONVERTIBLE
    PREFERRED STOCK AND STOCKHOLDERS EQUITY
    (DEFICIT)  TotalMandatorily Redeemable









Additional





StockholdersConvertible Preferred Stock



Common Stock


Paid-in


Accumulated


Equity/Shares


Amount



Shares


Amount


Capital


Deficit


(Deficit)(In thousands, except share data)Balance as of December 31, 2006


22,364,197


$
72,437




9,365,600


$
9


$
3,731


$
(60,920
)

$
(57,180
)Common stock issued in connection with early-exercises of stock
    options subject to repurchase











25,000















Common stock issued in connection with other exercises of options











717,212



1



1,451







1,452Common stock issued in connection with vesting of restricted
    stock units











500















Vesting of early-exercised stock options



















110







110Repurchase of shares of unvested common stock











(14,585
)






(10
)






(10
)Stock-based compensation



















1,908







1,908Issuance of Series B preferred stock in connection with
    warrants exercises


181



3




















Conversion of preferred stock to common stock due to IPO


(22,364,378
)


(72,440
)



22,364,378



22



72,418







72,440Issuance of common stock for IPO, net of issuance cost of $2,790











7,762,500



8



94,660







94,668Reclassification of warrant liability upon IPO



















1,272







1,272Common stock
    warrants-net
    exercise











86,756















Net income























2,190



2,190Balance at December 31, 2007











40,307,361



40



175,540



(58,730
)


116,850Common stock issued in connection with exercises of stock options











516,759



1



857







858Common stock issued in connection with vesting of restricted
    stock units











25,125















Vesting of early-exercised stock options



















70







70Repurchase of shares of unvested common stock











(4,480
)






(4
)






(4
)Stock-based compensation



















6,182







6,182Issuance of common stock in connection with business acquisition











338,245







3,098







3,098Net income























1,507



1,507Balance at December 31, 2008











41,183,010



41



185,743



(57,223
)


128,561Common stock issued in connection with exercises of stock options











523,932



1



2,438







2,439Common stock issued in connection with vesting of restricted
    stock units











175,902















Repurchase of shares of unvested common stock











(2,502
)






(15
)






(15
)Stock-based compensation



















11,768







11,768Issuance of common stock in connection with business acquisition











1,592,193



2



34,294







34,296Issuance of common stock for settlement of liabilities











34,626







718







718Net loss























(21,394
)


(21,394
)Balance at December 31, 2009





$





43,507,161


$
44


$
234,946


$
(78,617
)

$
156,373    51




---



##### Table of Contents



CAVIUM
    NETWORKS, INC.



CONSOLIDATED
    STATEMENTS OF CASH FLOWS  Year Ended December 31,2009


2008


2007(In thousands)Cash flows from operating activities:Net income (loss)

$
(21,394
)

$
1,507


$
2,190Adjustments to reconcile net income (loss) to net cash provided
    by (used in) operating activities:Stock-based compensation expense


11,727



6,057



1,869Amortization of warrant costs to interest expense










149Revaluation of warrants to fair value










574Depreciation and amortization


14,802



11,978



6,221In-process research and development






1,319



Other


39







(20
)Changes in assets and liabilities, net of effects of
    acquisitions:Accounts receivable, net


(6,726
)


(3,901
)


(2,520
)Inventories


(651
)


(6,063
)


(4,528
)Prepaid expenses and other current assets


22



(66
)


(322
)Other assets


(421
)


(275
)


49Accounts payable


(457
)


1,360



1,836Deferred revenue


3,743



35



825Accrued expenses and other current and non-current liabilities


(1,059
)


(1,324
)


(147
)Net cash provided by (used in) operating activities


(375
)


10,627



6,176Cash flows from investing activities:Purchases of property and equipment


(3,431
)


(8,965
)


(4,925
)Note receivable


(450
)






Acquisition of businesses, net of cash acquired


(12,487
)


(19,824
)


Purchases of intangible assets


(679
)


(331
)


(847
)Net cash (used in) investing activities


(17,047
)


(29,120
)


(5,772
)Cash flows from financing activities:Repayment of term loan financing










(4,000
)Proceeds from initial public offering, net of bankers
    discount and commission










97,459Payments of initial public offering costs










(2,791
)Proceeds from issuance of common stock upon exercise of options


2,439



858



1,092Principal payment of capital lease and technology license
    obligations


(3,111
)


(3,796
)


(3,846
)Repurchases of shares of unvested common stock


(15
)


(4
)


(10
)Net cash (used in) provided by financing activities


(687
)


(2,942
)


87,904Net (decrease) increase in cash and cash equivalents


(18,109
)


(21,435
)


88,308Cash and cash equivalents, beginning of period


77,027



98,462



10,154Cash and cash equivalents, end of period

$
58,918


$
77,027


$
98,462Supplemental disclosure of cash flow information:Cash paid for interest

$
243


$
499


$
473Cash paid for taxes

$
372


$
909


$
469Supplemental disclosure of non-cash investing and financing
    activities:Issuance of common stock in connection with the acquisition

$
34,296


$
3,098


$
Issuance of common stock for settlement of liabilities

$
718


$



$
Accrual for acquisition related costs

$
2,268


$
4,709


$
Capital lease and technology license obligations

$
9,036


$
723


$
9,812Vesting of early exercised options

$



$
70


$
110Additions to property and equipment included in accounts payable
    and accrued expenses

$



$



$
1,057Net exercise of common stock warrants

$



$



$
462Conversion of mandatorily redeemable convertible preferred stock
    to common stock

$



$



$
72,440    52




---



##### Table of Contents



CAVIUM
    NETWORKS, INC.
 NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  1.
    Organization
    and Significant Accounting Policies  Organization
      Initial
    Public Offering
    Basis
    of Consolidation
    Use of
    Estimates
    Summary
    of Significant Accounting Policies
  Cash
    and Cash Equivalents
    Allowance
    for Doubtful Accounts
   53




---



##### Table of Contents



Inventories
  work-in-process first-in,
  Property
    and Equipment
    EstimatedUseful LivesSoftware, computer and other equipment






1 to 5 yearsMask costs and test equipment






1 to 3 yearsFurniture, office equipment and leasehold improvements






1 to 5 years     Impairment
    of Long-Lived Assets
    Fair
    Value of Financial Instruments
    Concentration
    of Risk
   54




---



##### Table of Contents



Year Ended December 31,2009

2008

2007Percentage of total revenueCisco


24
%


29
%


23
%Actiontec


10



*



*F5 Networks


*



11



18Sumitomo


*



11



*     *
    
    Represents less than 10% of the net revenue for the respective
    period end.  2009

2008Percentage of gross accounts receivable:Flextronics


14
%


21
%Jabil Circuit


*



10
%     *
    
    Represents less than 10% of the gross accounts receivable for
    the respective period end.  Intangible
    Assets
    Goodwill
   55




---



##### Table of Contents



Revenue
    Recognition
             56




---



##### Table of Contents



time-and-materials time-and-materials
  Deferred
    revenue
  and/or
  Warranty
    Accrual
    As of December 31,2009


2008(In thousands)Beginning balance

$
154


$
261Accruals


695



144Settlements and adjustments made


(640
)


(251
)Ending balance

$
209


$
154   Indemnities
    Research
    and Development
    Advertising
   57




---



##### Table of Contents



Operating
    Leases
    Income
    Taxes
    Accounting
    for Stock-Based Compensation
          Year Ended December 31,2009


2008


2007(In thousands)Cost of revenue

$
373


$
179


$
43Research and development


5,574



2,684



805Sales, general and administrative


5,780



3,194



1,021Total stock-based compensation expense

$
11,727


$
6,057


$
1,869  58




---



##### Table of Contents



Other
    Comprehensive Income (Loss)
    Foreign
    Currency Translation
  non-U.S. dollars end-of-period
  Recent
    Accounting Pronouncements
  No. 2009-13 2009-13, 605-25, 2009-13
  No. 2009-05 2009-05, 2009-05 ASU 2009-05
    855-10 855-10 855-10 855-10
 59




---



##### Table of Contents



825-10-65 FAS 107-1 825-10-65 825-10-65 825-10-65
      2.
    Net
    Income (Loss) Per Common Share      Year Ended December 31,2009


2008


2007(In thousands)Net income (loss)

$
(21,394
)

$
1,507


$
2,190Weighted average common shares outstanding  basic


41,435



40,385



29,006Dilutive effect of employee stock plans






2,181



3,426Weighted average common shares outstanding  diluted


41,435



42,566



32,432Basic net income (loss) per share


(0.52
)


0.04



0.08Diluted net income (loss) per share


(0.52
)


0.04



0.07  60




---



##### Table of Contents



Year Ended December 31,2009

2008

2007(In thousands)Options to purchase common stock and restricted stock units


8,412



643



701   3.
    Fair
    Value    4.
    Balance
    Sheet Components  Inventories
  first-in,
  As of December 31,2009


2008(In thousands)Work-in-process

$
14,492


$
14,411Finished goods


3,473



2,870$
17,965


$
17,281   Property
    and equipment, net, consist of the following:
  As of


As ofDecember 31,


December 31,2009


2008(In thousands)Mask costs and test equipment

$
11,791


$
11,016Software, computer and other equipment


19,352



15,402Furniture, office equipment and leasehold improvements


466



12131,609



26,539Less: accumulated depreciation and amortization


(16,637
)


(15,424
)$
14,972


$
11,115      61




---



##### Table of Contents



Accrued
    expenses and other current liabilities consist of the
    following:
  As of December 31,2009


2008(In thousands)Accrued compensation and related benefits

$
3,577


$
1,191Acquisition related payables


2,268



4,489Restructuring related payables


623



389Accrued warranty


209



154Professional fees


688



835Income tax payable


567



54Other


512



585$
8,444


$
7,697   Other
    non-current liabilities consist of the following:
  As of December 31,2009


2008(In thousands)Accrued rent

$
884


$
187Acquisition related payables






220Restructuring related payables


1,036



464Income tax payable


649



291$
2,569


$
1,162   5.
    Business
    Combinations  Parallogic
    Corporation
        AmountNet tangible assets

$
Identifiable intangible assets:Customer relationships


76Developed technology


374Goodwill


816Total purchase price

$
1,266  62




---



##### Table of Contents



time-to-market
  Star
    Semiconductor Corporation
  system-on-a-chip,
    Amount(In thousands)Total purchase price of the acquisition of Star is as
    follows:Cash consideration

$
8,790Acquisition related expenses(1)


808Total purchase price

$
9,598     (1)
    
    Acquisition related expenses include legal and accounting fees
    and other external costs directly related to the acquisition. 63




---



##### Table of Contents



As AdjustedNet tangible assets

$
973Identifiable intangible assets


5,295Goodwill


3,330Total purchase price

$
9,598     EstimatedUseful lifeIntangible Assets

(in Years)

AmountExisting technology  product

4.0

$
3,849Core technology  product

4.0


467Existing technology  license

0.2


507Customer contracts and relationships

7.0


307Trade name

2.0


82Order backlog

0.2


83Total



$
5,295         W&W
    Communications, Inc.
   64




---



##### Table of Contents



Amount(In thousands)Total purchase price of the acquisition of W&W is as
    follows:Cash consideration(1)

$
3,891Value of common stock issued


3,098Acquisition related expenses(2)


1,262Total purchase price

$
8,251     (1)
    
    Of the total cash consideration of $3.9 million,
    $0.1 million was paid in fiscal 2008 and $3.8 million
    was paid in fiscal 2009.(2)
    
    Acquisition related expenses of $1.3 million include legal
    and accounting fees and other external costs directly related to
    the acquisition, of which $0.5 million was paid in fiscal
    2008 and the remaining $0.8 million was paid in fiscal 2009.    As AdjustedCash and cash equivalents

$
283Inventories


829Other assets


224Goodwill


8,887In-process research and development


1,319Other intangibles


10,114Accounts payable


(1,357
)Accrued expenses


(2,438
)Accrued restructuring


(750
)Notes payable


(8,860
)Total purchase price

$
8,251     EstimatedUseful LifeIntangible Assets

(in Years)

Amount(In thousands)Existing technology

1-5

$
7,768Core technology

5.0


1,306Customer contracts and relationships

6.0


583Order backlog

0.6


457Total



$
10,114  65




---



##### Table of Contents



in-process
        MontaVista
    Software, Inc.
      Amount(In thousands)Cash consideration(1)

$
10,948Value of Caviums common stock issued


34,296Total purchase price

$
45,244     (1)
    
    As of December 31, 2009, of the total cash consideration of
    $10.9 million, $8.6 million was paid and the remaining
    $2.3 million was not paid and was recorded as acquisition
    related liabilities in accrued expenses and other current
    liabilities. This amount is expected to be paid in 2010. 66




---



##### Table of Contents



AmountCash and cash equivalents

$
1,207Accounts receivable


1,185Prepaid expenses and other assets


1,299Property and equipment


729Goodwill


43,574Identifiable intangibles


14,909Accounts payable and accrued liabilities


(10,490
)Deferred revenue


(7,169
)Total purchase price

$
45,244   EstimatedUseful LifeIntangible Assets

(in Years)

Amount(In thousands)Existing technology

5.0

$
1,295Subscriber base

7.0


10,485Customer contracts and relationships

6.0


2,215Tradename/Trademarks

5.0


914Total



$
14,909         Pro
    forma financial information
   67




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##### Table of Contents



Year Ended December 31,2009

2008Net revenue

$
128,442


$
124,862Net loss

$
(36,998
)

$
(20,720
)Net loss per common share, basic

$
(0.86
)

$
(0.49
)Net loss per common share, diluted

$
(0.86
)

$
(0.49
)   6.
    Goodwill
    and Intangible Assets, Net  Goodwill
    As of December 31,2009


2008(In thousands)Balance at beginning of the year

$
12,925


$
Additions


43,574



12,925Adjustments


108



Balance at the end of the year

$
56,607


$
12,925     Intangible
    assets, net consisted of the following:
  As of December 31,2009


2008(In thousands)Existing and core technology  product

$
27,750


$
17,614Technology license


10,196



9,536Customer contracts and relationships


3,181



966Trade name


996



82Order backlog


540



54042,663



28,738Less: accumulated amortizationExisting and core technology  product


(8,027
)


(4,398
)Technology license


(8,389
)


(6,787
)Customer contracts and relationships


(253
)


(65
)Trade name


(66
)


(17
)Order backlog


(540
)


(513
)$
25,388


$
16,958  68




---



##### Table of Contents



7.
    Restructuring
    Accrual  sub-lease sub-lease
        Severanceand Other


Excess FacilityBenefits


Related Costs


TotalAccrued restructuring  January 1, 2009

$



$
853


$
853Additions


316



1,364



1,680Cash payments and other non-cash adjustments


(316
)


(558
)


(874
)Accrued restructuring, net  December 31, 2009

$



$
1,659


$
1,659Less: current portion






623



623Long-term portion

$



$
1,036


$
1,036   8.
    Stockholders
    Equity  Common
    and Preferred Stock
    2007
    Stock Incentive Plan
   69




---



##### Table of Contents



1 8 1 48
  2001
    Stock Incentive Plan
  1 8 1 48
      Weighted-AverageNumber of Unvested


Exercise/PurchaseShares Outstanding


PriceBalance as of December 31, 2006


872,210


$
1.63Issued


80,397



5.64Vested


(501,360
)


1.59Repurchased


(14,585
)


0.71Balance as of December 31, 2007


436,662


$
2.45Issued






0.00Vested


(286,303
)


1.94Repurchased


(4,795
)


0.84Balance as of December 31, 2008


145,564


$
3.50Issued






Vested


(101,391
)


3.00Repurchased


(2,502
)


5.99Balance as of December 31, 2009


41,671


$
4.59  70




---



##### Table of Contents



Number of Shares


Weighted AverageOutstanding


Exercise PriceBalance as of December 31, 2006


4,221,404


$
2.05Options granted


546,575



15.31Options exercised


(742,212
)


1.97Options cancelled and forfeited


(105,766
)


3.93Balance as of December 31, 2007


3,920,001


$
3.86Options granted


2,124,475



16.32Options exercised


(516,759
)


1.58Options cancelled and forfeited


(130,263
)


12.15Balance as of December 31, 2008


5,397,454


$
8.78Options granted


3,032,486



11.39Options exercised


(523,932
)


4.65Options cancelled and forfeited


(336,911
)


14.93Balance as of December 31, 2009


7,569,097


$
9.84       Outstanding Options


Exercisable OptionsWeightedAverage


Weighted





WeightedRemaining


Average





AverageNumber


Contractual


Exercise


Number of


Exercise


AggregrateExercise Prices

of Shares


Term


Price


Shares


Price


Intrinsic Value$0.20-1.02


973,255



5.36


$
0.87



973,255


$
0.871.50-1.50


47,344



5.97



1.50



47,344



1.503.04-3.04


1,297,733



6.20



3.04



1,045,262



3.043.74-8.52


898,960



6.39



7.76



487,011



7.4910.32-10.32


1,888,851



5.71



10.32



363,910



10.3212.56-14.42


169,869



6.05



13.79



40,539



13.8314.80-14.80


1,209,733



5.19



14.80



501,062



14.8016.32-31.54


1,083,352



5.12



21.11



309,926



22.310.20-31.54


7,569,097



5.67


$
9.84



3,768,309


$
7.00


$
106,570,000Exercisable


3,768,309



5.67


$
7.00










$
63,798,000Vested and expected to vest


7,380,831



5.67


$
9.75










$
104,569,000    71




---



##### Table of Contents



For the Year Ended December 31,2009

2008

2007Risk-free interest rate

1.52% - 2.19%

1.31% - 3.32%

3.29% - 4.72%Expected life

4-5 years

4-5 years

4-6 yearsDividend yield

0%

0%

0%Volatility

58% to 64%

55% to 63%

55% to 56%       Restricted
    Stock Unit Awards
    Weighted-AverageGrant DateNumber of


Fair ValueShares


per ShareBalance as of December 31, 2006





$
Granted


12,500



31.54Issued and released


(500
)


31.54Cancelled and forfeited






Balance as of December 31, 2007


12,000


$
31.54Granted


300,820



16.82Issued and released


(25,125
)


20.07Cancelled and forfeited


(6,762
)


16.54Balance as of December 31, 2008


280,933


$
17.16Granted


768,893



16.48Issued and released


(175,902
)


13.10Cancelled and forfeited


(31,388
)


14.25Balance as of December 31, 2009


842,536


$
17.49Expected to vest as of December 31, 2009


779,425


$
17.49  72




---



##### Table of Contents



9.
    Income
    Taxes      Year Ended December 31,2009


2008


2007(In thousands)Domestic

$
(8,978
)

$
14,131


$
11,037Foreign


(12,167
)


(11,694
)


(8,705
)$
(21,145
)

$
2,437


$
2,332     Year Ended December 31,2009


2008


2007(In thousands)Domestic

$
(47
)

$
865


$
97Foreign


296



65



45$
249


$
930


$
142     Year Ended December 31,2009

2008

2007Income tax at statutory rate


34.0
%


34.0
%


34.0
%State taxes, net of federal benefit


(0.4
)


1.6



1.1Non-deductible in-process research and development






18.4



Non-deductible stock compensation costs


(2.2
)


10.4



Alternative minimum tax






33.0



2.5Change in valuation allowance


(10.5
)


(228.6
)


(160.4
)Foreign net operating losses not benefited


(21.7
)


166.0



129.0Other


(0.4
)


3.4



(0.1
)Total


(1.2
)%


38.2
%


6.1
%  73




---



##### Table of Contents



As of December 31,2009


2008(In thousands)Deferred tax assets:Tax credits

$
14,020


$
4,481Net operating loss carryforwards


22,428



6,340Capitalized research and development


36



85Depreciation and amortization


3,179



3,610Stock compensation


4,789



2,372Other


2,867



1,485Gross deferred tax assets


47,319



18,373Less: valuation allowance


(39,601
)


(14,430
)Net deferred tax assets


7,718



3,943Deferred tax liabilities:Other


(7,474
)


(3,943
)Net deferred tax assets

$
244


$
            74




---



##### Table of Contents



Year Ended December 31,2009


2008


2007(In thousands)Balance at beginning of the year

$
4,033


$
3,574


$
3,264Gross increases related to prior years tax positions


117



147



40Gross increases related to current years tax positions


699



312



270Balance at the end of the year

$
4,849


$
4,033


$
3,574   and/or
      10.
    Retirement
    Plan   75




---



##### Table of Contents



11.
    Segment
    Information      Year Ended December 31,2009


2008


2007(In thousands)United States

$
40,623


$
44,787


$
32,748Hong Kong


18,231



3,643



500Taiwan


15,224



11,533



10,500Japan


10,802



11,559



2,732China


5,958



6,206



3,367Other countries


10,376



8,881



4,356Total

$
101,214


$
86,609


$
54,203   12.
    Commitments
    and Contingencies     76




---



##### Table of Contents



Capital Leaseand TechnologyLicense


OperatingObligations


Leases


Total(In thousands)2010

$
3,544


$
2,846


$
6,3902011


3,441



2,126



5,5672012


2,501



1,386



3,8872013






310



310thereafter










$
9,486


$
6,668


$
16,154Less: Interest component


(474
)Present value of minimum lease payment


9,012Less: current portion


(3,271
)Long-term portion of obligations

$
5,741      77




---



##### Table of Contents



Schedule II 
    Valuation and Qualifying Accounts and Reserves  Balance at





Balance atBeginning





End ofDescription

of Period

Additions

Deductions

Period(In thousands)Year ended December 31, 2009Allowance for doubtful accounts

$
34


$



$
(10
)

$
24Allowance for customer returns


169



1,291



(1,117
)


343Income tax valuation allowance


14,430



25,171







39,601Year ended December 31, 2008Allowance for doubtful accounts

$
38


$



$
(4
)

$
34Allowance for customer returns


139



695
(1)


(665
)(1)


169Income tax valuation allowance


13,136



1,294







14,430Year ended December 31, 2007Allowance for doubtful accounts

$
68


$



$
(30
)

$
38Allowance for customer returns


34



434



(329
)


139Income tax valuation allowance


19,078







(5,942
)


13,136     (1)
    
    Certain reclassifications have been made to 2008 amounts to
    conform to 2009 presentation.   78




---



##### Table of Contents



Item 9.
    Changes
    In and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  MANAGEMENTS
    REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
  Rules 13a-15(f) 15d-15(f)
      Changes
    in Internal Control Over Financial Reporting
  Rules 13a-15(f) 15d-15(f)
 79




---



##### Table of Contents



Disclosure
    Controls and Procedures
  Rules 13a-15(e) 15d-15(e) Form 10-K.
  Item 9B.
    Other
    Information   PART III  Form 10-K Form 10-K,
  Item 10.
    Directors,
    Executive Officers and Corporate Governance  Form 10-K,
      http://investor.caviumnetworks.com.
  Item 11.
    Executive
    Compensation.    Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters.   80




---



##### Table of Contents



Item 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence.    Item 14.
    Principal
    Accounting Fees and Services.   PART IV  Item 15.
    Exhibits,
    Financial Statement Schedules      1.


Financial Statements:


47See Index to Financial Statements in Item 8 of this Annual
    Report on
    Form 10-K,
    which is incorporated herein by reference.2.


Financial Statement Schedule:


78Schedule II  Valuation and Qualifying Accounts
    and Reserve3.


Exhibits:


83The exhibits listed in the accompanying index to exhibits are
    filed or incorporated by reference as a part of this Annual
    Report on
    Form 10-K.  81




---



##### Table of Contents



SIGNATURES      By
    /s/  Syed
    Ali     By
    /s/  Arthur
    Chadwick        Signature

Title

Date/s/  Syed
    AliSyed
    Ali

President, Chief Executive Officer and Director (Principal
    Executive Officer)

March 1, 2010/s/  Arthur
    ChadwickArthur
    Chadwick

Chief Financial Officer, Vice President of Finance and
    Administration and Secretary (Principal Financial and
    Accounting Officer)

March 1, 2010/s/  Kris
    ChellamKris
    Chellam

Director

March 1, 2010/s/  Sanjay
    MehrotraSanjay
    Mehrotra

Director

March 1, 2010/s/  Anthony
    PantusoAnthony
    Pantuso

Director

March 1, 2010/s/  C.N.
    ReddyC.N.
    Reddy

Director

March 1, 2010/s/  Anthony
    ThornleyAnthony
    Thornley

Director

March 1, 2010  82




---



##### Table of Contents



EXHIBIT INDEX  Incorporated by ReferenceExhibit



Schedule/

File



FilingNumber

Description

Form

Number

Exhibit

Date2
.1

Agreement and Plan of Merger and Reorganization by and between
    the Registrant, MV Acquisition Corporation, Mantra, LLC, and
    MontaVista Software, Inc., dated November 6, 2009.

8-K

001-33435

2.1

11/10/20092
.2

Amendment No. 1 to Agreement and Plan of Merger and
    Reorganization by and between the Registrant, MV Acquisition
    Corporation, Mantra, LLC, and MontaVista Software, Inc., dated
    December 14, 2009.

8-K

001-33435

10.1

12/18/20093
.1

Amended and Restated Certificate of Incorporation of the
    Registrant

10-K

001-33435

3.1

3/2/20093
.2

Amended and Restated Bylaws of the Registrant

S-1/A

333-140660

3.5

4/13/20074
.1

Reference is made to exhibits 3.1 and 3.24
.2

Form of the Registrants Common Stock Certificate

S-1/A

333-140660

4.2

4/24/20074
.3

Third Amended and Restated Investors Rights Agreement,
    dated December 8, 2004, as amended on October 25, 2005
    and August 9, 2006, by and among the Registrant and certain
    of its security holders

S-1

333-140660

4.3

2/13/20074
.4

Registration Rights Agreement by and between the Registrant and
    certain stockholders of MontaVista Software, Inc., dated
    December 14, 2009.

8-K

001-33435

4.1

12/18/200910
.1

Form of Indemnity Agreement entered into between the Registrant
    and its directors and officers

S-1

333-140660

10.1

2/13/200710
.2

2001 Stock Incentive Plan and forms of agreements thereunder

S-1

333-140660

10.2

2/13/200710
.3

2007 Equity Incentive Plan

10-K

001-33435

3.1

3/2/200910
.4

Form of Option Agreement under 2007 Equity Incentive Plan

10-Q

001-33435

10.24

5/2/200810
.5

Form of Option Grant Notice and Form of Exercise Notice under
    2007 Equity Incentive Plan

S-1

333-140660

10.4

2/13/200710
.6

Form of Restricted Stock Unit Award under 2007 Equity Incentive
    Plan

10-Q

333-33435

10.25

8/8/200810
.7

Restricted Stock Unit Retention Plan

10-K

001-33435

10.7

3/2/200910
.8

Executive Employment Agreement, dated January 2, 2001,
    between the Registrant and Syed Ali

S-1

333-140660

10.5

2/13/200710
.9

Amendment to Executive Employment Agreement, dated
    December 24, 2008, between the Registrant and Syed Ali

10-K

001-33435

10.9

3/2/200910
.10

Employment Offer Letter, dated December 27, 2004, between
    the Registrant and Arthur Chadwick

S-1

333-140660

10.6

2/13/2007 83




---



##### Table of Contents



Incorporated by ReferenceExhibit



Schedule/

File



FilingNumber

Description

Form

Number

Exhibit

Date10
.11

Employment Offer Letter, dated January 22, 2001, between
    the Registrant and Anil K. Jain

S-1

333-140660

10.7

2/13/200710
.12

Amendment to Offer Letter, dated December 24, 2008, between
    the Registrant and Anil Jain

10-K

001-33435

10.12

3/2/200910
.13

Employment Offer Letter, dated May 6, 2003, between the
    Registrant and Rajiv Khemani

S-1

333-140660

10.8

2/13/200710
.14

Employment Offer Letter, dated May 1, 2008, between the
    Registrant and Sandeep Vij

10-Q

001-33435

10.23

5/2/200810
.15

Amendment to Offer Letter, dated December 23, 2008, between
    the Registrant and Sandeep Vij

10-K

001-33435

10.15

3/2/200910
.16

Letter Agreement, dated November 4, 2005, between the
    Registrant and Kris Chellam

S-1

333-140660

10.9

2/13/200710
.17

Letter Agreement, dated September 1, 2006, between the
    Registrant and Anthony Thornley

S-1

333-140660

10.10

2/13/200710
.18

Letter Agreement, dated July 15, 2009, between the
    Registrant and Sanjay Mehrotra

8-K

001-33435

10.1

7/24/200910
.19

2009 Executive Officer Salaries

10-Q

001-33435

10.1

5/7/200910
.20

Lease Agreement, dated April 15, 2005, between the
    Registrant and MB Technology Park, LLC

S-1

333-140660

10.11

2/13/200710
.21

First Amendment to Lease Agreement, dated March 6 2008, between
    the Registrant and MB Technology Park, LLC

10-K

001-33435

10.12

3/10/200810
.22

Letter Agreement, dated March 15, 2007, between the
    Registrant and AVM Capital, L.P.

S-1/A

333-140660

10.20

3/16/2007#10
.23

Master Technology License Agreement, dated December 30,
    2003, between the Registrant and MIPS Technologies, Inc.

S-1/A

333-140660

10.21

4/6/200710
.24

Asset Purchase Agreement by and between the Registrant, Cavium
    International, Cavium (Taiwan) Ltd., and Star Semiconductor
    Corporation, dated July 15, 2008.

8-K

001-33435

10.1

7/16/200810
.25

Agreement and Plan of Merger and Reorganization by and between
    the Registrant, WWC Acquisition Corporation, WWC I, LLC,
    and W&W Communications, Inc., dated November 19, 2008.

8-K

001-33435

10.26

11/20/200821
.1*

Subsidiaries of the Registrant23
.1*

Consent of PricewaterhouseCoopers LLP, independent registered
    public accounting firm31
.1*

Certification Pursuant to 18 U.S.C. Section 1350, as
    Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002 of Syed B. Ali, President and Chief Executive Officer 84




---



##### Table of Contents



Incorporated by ReferenceExhibit



Schedule/

File



FilingNumber

Description

Form

Number

Exhibit

Date31
.2*

Certification Pursuant to 18 U.S.C. Section 1350, as
    Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002 of Arthur D. Chadwick, Chief Financial Officer32
.1*

Certification Pursuant to 18 U.S.C. Section 1350, as
    Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002 of Syed B. Ali, President and Chief Executive Officer
    and Arthur D. Chadwick, Chief Financial Officer     *
    
    Filed herewith#
    
    Confidential treatment has been requested with respect to
    certain portions of this exhibit. Omitted portions have been
    filed separately with the Securities and Exchange Commission.
    
    Management contract or compensatory plan or arrangement. 85