##### Table of Contents





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, 2007ORo

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, including zip code,
    and telephone number, including area code, of Registrants
    principal executive offices)
  Syed B. Ali
 President and Chief Executive Officer
 Cavium Networks, Inc.
 805 East Middlefield Road
 Mountain View, CA 94043
 (650) 623-7000
 (Name, address, including zip
    code, and telephone number, including area code, of agent for
    service)
  Securities registered pursuant to Section 12(b) of the
    Act:
  Title of Each Class

Name of Each Exchange on Which Eachto be so Registered

Class is to be 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
      o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. þ
  Rule 12b-2
 Large
    accelerated
    filer o
    Accelerated
    filer o
    Non-accelerated
    filer þ
    Smaller reporting
    company o (Do not check if a smaller
    reporting company)
  Rule 12b-2 o þ
    : 40,383,818
  Documents Incorporated by Reference: form 10-K Form 10-K.




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##### 





CAVIUM
    NETWORKS, INC.
  YEAR
    ENDED DECEMBER 31, 2007
 FORM 10-K
  ANNUAL
    REPORT
    TABLE OF
    CONTENTS
  PagePART I.Item 1.

Business


1Item 1A.

Risk Factors


9Item 1B.

Unresolved Staff Comments


22Item 2.

Properties


22Item 3.

Legal Proceedings


23Item 4.

Submission of Matters to a Vote of Security
    Holders


23PART II.Item 5.

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


23Item 6.

Selected Financial Data


26Item 7.

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


27Item 7A.

Quantitative and Qualitative Disclosures about
    Market Risk


44Item 8.

Financial Statements and Supplementary Data


45Item 9.

Changes In and Disagreements with Accountants on
    Accounting and Financial Disclosure


72Item 9A.

Controls and Procedures


72Item 9B.

Other Information


72PART III.Item 10.

Directors, Executive Officers and Corporate
    Governance


72Item 11.

Executive Compensation


72Item 12.

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


73Item 13.

Certain Relationships and Related Transactions,
    and Director Independence


73Item 14.

Principal Accountant Fees and Services


73PART IV.Item 15.

Exhibits and Financial Statement Schedules


73Signatures


74EXHIBIT 10.12EXHIBIT 21.1EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1.1




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Forward
    Looking Statements
  Form 10-K Form 10-K Form 10-K
 PART I  Item 1.
    Business  Overview
      Industry
    Background
   1




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end-to-end
    Products
   2




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Product Lines

AvailableProduct Families

(# of MIPS Cores)

Configurations

Description

Target End MarketsOCTEON Plus Multi-core MIPS64 Processors

 CN58XX(16)
     CN57XX (12)
     CN56XX (12)
     CN55XX(6)
     CN54XX(6)
     CN52XX(4)
     CN50XX(2)

 Network Services Processor
     Storage Services Processor
     Secure Communication Processor
     Communication Processor

 Multi-core MIPS64 Processors with 2-16 cores,
    integrated L4-L7 hardware acceleration and networking
    interfaces
     Performance: 1Gbps to 20+ Gbps

 Enterprise Network
     Access and Service Provider
     Data CenterOCTEON Multi-core MIPS64 Processors

 CN38XX(16)
 CN36XX(4)
 CN31XX(2)
 CN30XX(1)

 Network Services Processor
     Secure Communication Processor
     Communication Processor

 Multi-core MIPS64 Processors with 2-16 cores,
    integrated L4-L7 hardware acceleration and networking
    interfaces
     Performance: 1Gbps to 10+ Gbps

 Enterprise Network
     Access and Service Provider
     Data CenterNITROX Security Processors

 CN2XXX
     CN1XXX
     CN5XX

 i/s/w: IPsec, SSL or WLAN Security versions
     p: Multi-protocol version

 Standalone Security Processors, with wide range of
    interface connectivity

 Enterprise Network
     Data Center
     Access and Service Provider
     Broadband and ConsumerNITROX Soho/ OCTEON Broadband Communication Processors

 CN50XX(2) CN31XX(2)
 CN30XX(1)
 CN2XX(1)

 Network Services Processor
     Secure Communication Processor
     Communication Processor

 Cost-effective Single & Dual core MIPS-based
    Communication Processors with integrated Networking, Security,
    QoS acceleration and built-in interfaces
     Performance: 100Mbps to 1Gbps

 Broadband and Consumer
     Enterprise and Consumer    3




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Customers
      Sales and
    Marketing
     4




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Manufacturing
    Integrated Circuit Fabrication. sub-micron
  Assembly and Test.
  Quality Assurance.
  Research
    and Development
    Intellectual
    Property
   5




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6




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Competition
        Backlog
    Employees
   7




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Executive
    Officers of the Registrant
    Syed B. Ali

49

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

51

Vice President of Finance and Administration and Chief Financial
    OfficerAnil K. Jain

51

Vice President of IC EngineeringRajiv Khemani

40

Vice President of Marketing and Sales   Syed B. Ali
  Arthur D. Chadwick
  Anil K. Jain
  Rajiv Khemani
  Corporate
    Information
  (650) 623-7000. Form 10-K. Form 10-K
  Available
    Information
  Form 10-K, Form 10-Q, Form 8-K,
 8




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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 history of losses, 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.
      
    our success in identifying new and emerging markets,
    applications and technologies; 9




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
    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.
    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. 10




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We
    expect our operating results to fluctuate.
      
    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.
   11




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
    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;
    add additional sales personnel and expand sales offices;
    implement and improve our administrative, financial and
    operational systems, procedures and controls; and
    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.    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.
   12




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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.
        
    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. 13




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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.
    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.
     14




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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.
    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; 15




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
    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.
        just-in-time
 16




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Any
    increase in the manufacturing cost of our products could reduce
    our gross margins and operating profit.
        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.
    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.
   17




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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.
        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.
   18




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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 Taiwan, 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.
    The
    semiconductor and communications industries have historically
    experienced significant fluctuations with prolonged downturns,
    which could impact our operating results, financial condition
    and cash flows.
     19




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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
  Any
    acquisitions we make could disrupt our business and harm our
    financial condition.
    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.
   20




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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.
    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.   21




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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.    Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties   22




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Item 3.
    Legal
    Proceedings  Form 10-K,
  Item 4.
    Submission
    of Matters to a Vote of Security Holders   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


LowSecond Quarter 2007 (from May 2, 2007)

$
26.27


$
16.44Third Quarter 2007

$
35.60


$
21.53Fourth Quarter 2007

$
34.75


$
21.63     Dividend
    Policy
    23




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Stock
    Performance Graph(1)
    
  5/2/2007


6/30/2007


9/30/2007


12/31/2007Cavium Networks



100.0




137.5




197.6




139.9Nasdaq Composite Index



100.0




101.8




105.6




103.7Nasdaq Computer Index



100.0




104.1




109.6




115.8     (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
     24




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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
   25




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Item 6.
    Selected
    Financial Data  Form 10-K. Form 10-K. Form 10-K.
  Year Ended December 31,2007


2006


2005


2004


2003(In thousands, except share and per share data)Consolidated Statements of Operations Data:Revenue

$
54,203


$
34,205


$
19,377


$
7,411


$
2,433Cost of revenue(1)(2)


19,898



13,092



7,865



3,080



773Gross profit


34,305



21,113



11,512



4,331



1,660Operating expenses:Research and development(2)


19,548



18,651



16,005



12,010



9,970Sales, general and administrative(2)


14,688



10,058



6,840



3,752



2,745Total operating expenses


34,236



28,709



22,845



15,762



12,715Income (loss) from operations


69



(7,596
)


(11,333
)


(11,431
)


(11,055
)Other income (expense), net:Interest expense


(622
)


(707
)


(183
)


(388
)


(47
)Warrant revaluation expense


(573
)


(467
)


(411
)






Interest income and other


3,458



345



355



86



97Total other income (expense), net


2,263



(829
)


(239
)


(302
)


50Income (loss) before income tax expense and cumulative effect of
    change in accounting principle


2,332



(8,425
)


(11,572
)


(11,733
)


(11,005
)Income tax expense


(142
)


(560
)










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


2,190



(8,985
)


(11,572
)


(11,733
)


(11,005
)Cumulative effect of change in accounting principle










(100
)






Net income (loss)

$
2,190


$
(8,985
)

$
(11,672
)

$
(11,733
)

$
(11,005
)Net income (loss) per common share, basic

$
0.08


$
(1.11
)

$
(1.59
)

$
(1.82
)

$
(2.14
)Shares used in computing basic net income (loss) per common share


29,005,743



8,065,995



7,318,607



6,459,050



5,130,794Net income (loss) per common share, diluted

$
0.07


$
(1.11
)

$
(1.59
)

$
(1.82
)

$
(2.14
)Shares used in computing diluted net income (loss) per common
    share


32,431,976



8,065,995



7,318,607



6,459,050



5,130,794  26




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(1)
    
    Includes acquired intangible asset amortization of $860, $1,116,
    $1,007, $254 and none, in the years ended December 31,
    2007, 2006, 2005, 2004 and 2003, respectively.(2)
    
    Includes stock-based compensation expense as follows:(3)
    
    We applied the provisions of FAS 123(R) in 2006 and 2007.  Year Ended December 31,2007(3)


2006(3)


2005


2004


2003(In thousands)Cost of revenue

$
43


$
9


$



$



$
Research and development


805



396



10







Sales, general and administrative


1,021



340



75



85



   Year Ended December 31,2007


2006


2005


2004


2003(In thousands)Consolidated Balance Sheet Data:Cash and cash equivalents

$
98,462


$
10,154


$
7,879


$
18,381


$
11,384Working capital


105,048



11,689



6,160



17,718



11,198Total assets


134,610



29,962



20,219



28,731



17,991Preferred stock warrant liability






701



1,184







Capital lease and technology license obligations


8,530



3,580



3,087







Notes payable






4,000











Other non-current liabilities






39



74







Convertible preferred stock






72,437



61,820



62,339



41,494Common stock and additional paid-in capital


175,580



3,740



1,261



641



477Total stockholders equity (deficit)

$
116,850


$
(57,180
)

$
(50,674
)

$
(39,776
)

$
(28,530
)   Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  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. Such statements are based upon our
    managements believes and assumptions and on information
    currently available to our management. Any statements contained
    herein that are not statements of historical facts may be deemed
    to be forward-looking statements. For example, words such as
    may, will, should,
    could, would, estimates,
    predicts, potential,
    continue, strategy,
    believes, anticipates,
    plans, expects, intends and
    variations of such words and similar expressions are 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. These risks,
    uncertainties and other factors in this Annual Report on
    Form 10-K
    are discussed 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. 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.
 27




---



##### Table of Contents



Overview
      off-the-shelf
  Key
    Business Metrics
  Design Wins.
  Pricing and Margins.
 28




---



##### Table of Contents



Sales Volume.
  Customer Product Life Cycle.
  Critical
    Accounting Policies and Estimates
      
    revenue recognition;
    product warranty accrual;
    stock-based compensation;
    estimation of fair value of warrants to purchase convertible
    preferred stock;
    inventory valuation;
    accounting for income taxes; and
    mask costs.    Revenue
    Recognition
   29




---



##### Table of Contents



30




---



##### Table of Contents



Warranty
    Accrual
    Stock-Based
    Compensation
  Accounting
    for Stock Issued to Employees Accounting for Certain
    Transactions Involving Stock Compensation, an Interpretation of
    APB No. 25 Accounting for
    Stock-Based Compensation Accounting for Stock-Based
    Compensation  Transition and Disclosure.
      Year EndedDecember 31,2007Employee and Director Stock OptionsExpected life in years

4.0-6.0Risk-free interest rate

3.29%-4.72%Volatility

55%-56.07%Dividend yield

Weighted average fair value of grants

$9.62      31




---



##### Table of Contents



No. 96-18, Accounting for Equity Instruments That Are Issued to Other
    Than Employees for Acquiring, or in Conjunction with Selling,
    Goods or Services
  Estimation
    of Fair Value of Warrants to Purchase Convertible Preferred
    Stock
  150-5, Issuers Accounting under FASB Statement No. 150
    for Freestanding Warrants and Other Similar Instruments on
    Shares That Are Redeemable FSP 150-5. FSP 150-5 FSP 150-5,
    Inventory
    Valuation
    Accounting
    for Income Taxes
  non-United
 32




---



##### Table of Contents



Accounting for Uncertainty
    in Income Taxes
  and/or and/or
  Mask
    Costs
    Results
    of Operations
  Revenue.
 33




---



##### Table of Contents



Year Ended December 31,2007


2006


2005F5 Networks


18
%


21
%


19
%Cisco


23



18



*SonicWALL


*



*



12Yamaha


*



*



11     *
    
    Represents less than 10%        Year Ended December 31,2007


2006


2005(In thousands)United States

$
32,748


$
19,483


$
10,292Taiwan


10,500



7,403



3,085China


3,367



2,290



1,865Japan


2,732



2,612



3,517Other countries


4,856



2,417



618Total

$
54,203


$
34,205


$
19,377   Cost of Revenue and Gross Margin.
 34




---



##### Table of Contents



12-month
    Year Ended December 31,2007


2006


2005(In thousands)Revenue

$
54,203


$
34,205


$
19,377Cost of revenue


19,898



13,092



7,865Gross profit

$
34,305


$
21,113


$
11,512Gross margin


63.3
%


61.7
%


59.4
%     Research and Development Expenses.
 35




---



##### Table of Contents



Year Ended December 31,2007


2006


2005(In thousands)Research and development expenses

$
19,548


$
18,651


$
16,005Percent of revenue


36.1
%


54.5
%


82.6
%   Sales, General and Administrative
    Expenses.
  Year Ended December 31,2007


2006


2005(In thousands)Sales, general and administrative expenses

$
14,688


$
10,058


$
6,840Percent of revenue


27.1
%


29.4
%


35.3
%   Other Income (Expense), Net. FSP 150-5. FSP 150-5
  Year Ended December 31,2007


2006


2005(In thousands)Interest expense

$
(622
)

$
(707
)

$
(183
)Warrant revaluation expense


(573
)


(467
)


(411
)Interest income and other


3,458



345



355Other income (expense), net

$
2,263


$
(829
)

$
(239
)   Provision for Income Taxes.
 36




---



##### Table of Contents



Accounting for Uncertainty
    in Income Taxes
  and/or and/or
       37




---



##### Table of Contents



Fiscal
    2007 Compared to Fiscal 2006
  Revenue.
  Cost of Revenue and Gross Margin.
  Research and Development Expenses.
  Sales, General and Administrative
    Expenses.
  Income Tax Expense.
  Other Income (Expense), Net.
  Fiscal
    2006 Compared to Fiscal 2005
  Revenue.
  Cost of Revenue and Gross Margin.
  Research and Development Expenses.
 38




---



##### Table of Contents



Sales, General and Administrative
    Expenses.
  Income Tax Expense.
  Other Income (Expense), Net.
  Quarterly
    Results of Operations
  period-to-period
 39




---



##### Table of Contents



Quarter Ended2007


2006Dec. 31


Sep. 30


Jun. 30


Mar. 31


Dec. 31


Sep. 30


Jun. 30


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

$
16,231


$
14,165


$
12,666


$
11,141


$
9,870


$
9,187


$
8,099


$
7,049Cost of revenue


5,811



5,207



4,698



4,182



3,457



3,878



3,135



2,622Gross profit


10,420



8,958



7,968



6,959



6,413



5,309



4,964



4,427Operating expenses:Research and development


5,705



4,796



4,721



4,326



4,368



4,224



4,939



5,120Sales, general and administrative


4,021



3,976



3,482



3,209



2,511



2,594



2,799



2,154Total operating expenses


9,726



8,772



8,203



7,535



6,879



6,818



7,738



7,274Income (loss) from operations


694



186



(235
)


(576
)


(466
)


(1,509
)


(2,774
)


(2,847
)Other income (expense), net:Interest expense


(50
)


(73
)


(291
)


(208
)


(152
)


(271
)


(199
)


(85
)Warrant revaluation expense










(349
)


(224
)


(151
)


(13
)


(152
)


(151
)Interest income and other


1,265



1,307



817



69



111



117



36



81Total other income (expense), net


1,215



1,234



177



(363
)


(192
)


(167
)


(315
)


(155
)Income (loss) before income tax expense


1,909



1,420



(58
)


(939
)


(658
)


(1,676
)


(3,089
)


(3,002
)Income tax benefit (expense)


59



(110
)


(34
)


(57
)


(558
)










(2
)Net Income (loss)

$
1,968


$
1,310


$
(92
)

$
(996
)

$
(1,216
)

$
(1,676
)

$
(3,089
)

$
(3,004
)Net income (loss) per common share, basic and diluted

$
0.05


$
0.03


$
0.00


$
(0.12
)

$
(0.14
)

$
(0.20
)

$
(0.38
)

$
(0.39
)        40




---



##### Table of Contents



Liquidity
    and Capital Resources
          Year Ended December 31,2007


2006


2005(In thousands)Working capital

$
105,048


$
11,689


$
6,160Cash and cash equivalents


98,462



10,154



7,879     Year Ended December 31,2007


2006


2005(In thousands)Net cash provided by (used in) operating activities

$
6,176


$
(7,819
)

$
(7,955
)Net cash used in investing activities


(5,772
)


(2,075
)


(2,608
)Net cash provided by financing activities


87,904



12,169



61   Cash
    Flows from Operating Activities
     41




---



##### Table of Contents



Cash
    Flows from Investing Activities
        Cash
    Flows from Financing Activities
        Indemnities
    Off-Balance
    Sheet Arrangements
   42




---



##### Table of Contents



Contractual
    Obligations
    Payments Due By PeriodLess Than


1 to 2


3 to 5


More Than1 Year


Years


Years


5 Years


Total(In thousands)Operating leases

$
1,266


$
2,175


$
1,042


$



$
4,483Capital lease and technology license obligations


4,969



4,370











9,339Purchase commitments


4,697















4,697Total

$
10,932


$
6,545


$
1,042


$



$
18,519     Recent
    Accounting Pronouncements
      Business Combinations
  Noncontrolling Interests in Consolidated Financial
    Statements,
 43




---



##### Table of Contents



Item 7A.
    Quantitative
    and Qualitative Disclosure About Market Risk  Foreign
    Currency Risk
    Interest
    Rate Risk
   44




---



##### Table of Contents



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


46Consolidated Balance Sheets


47Consolidated Statements of Operations


48Consolidated Statements of Changes in Mandatorily
    Redeemable Convertible Preferred Stock and Stockholders
    Equity (Deficit)


49Consolidated Statements of Cash Flows


50Notes to Consolidated Financial Statements


51  45




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM         PricewaterhouseCoopers
    LLP
    46




---



##### Table of Contents



CAVIUM
    NETWORKS, INC.
  CONSOLIDATED
    BALANCE SHEETS
 (In thousands, except share data)
  As of December 31,2007


2006ASSETSCurrent assets:Cash and cash equivalents

$
98,462


$
10,154Accounts receivable, net of allowances of $177 and $102,
    respectively


9,768



7,248Inventories


9,573



5,006Prepaid expenses and other current assets


946



405Total current assets


118,749



22,813Property and equipment, net


11,608



5,040Intangible assets, net


4,096



1,902Other assets


157



207Total assets

$
134,610


$
29,962LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED
    STOCK
    AND STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Accounts payable

$
5,311


$
2,904Accrued expenses and other current liabilities


2,253



2,853Deferred revenue


1,666



628Capital lease and technology license obligations, current portion


4,471



2,564Preferred stock warrant liability






701Notes payable, current portion






1,474Total current liabilities


13,701



11,124Notes payable, net of current portion






2,526Capital lease and technology license obligations, net of current
    portion


4,059



1,016Other non-current liabilities






39Total liabilities


17,760



14,705Commitments and contingencies (Note 12)Mandatorily redeemable convertible preferred stock, par value
    $0.001:None and 22,935,158 shares authorized; none and
    22,364,197 shares issued and outstanding; none and $69,623
    aggregate liquidation preference; as of December 31, 2007
    and 2006






72,437Stockholders equity (deficit)Preferred stock, par value $0.001:10,000,000 shares and none authorized, no shares issued and
    outstanding as of December 31, 2007 and 2006






Common stock, par value $0.001:200,000,000 and 40,965,057 shares authorized; 40,307,361
    and 9,365,600 shares issued and outstanding; as of
    December 31, 2007 and 2006


40



9Additional paid-in capital


175,540



3,731Accumulated deficit


(58,730
)


(60,920
)Total stockholders equity (deficit)


116,850



(57,180
)Total liabilities, mandatorily redeemable convertible preferred
    stock and stockholders equity (deficit)

$
134,610


$
29,962    47




---



##### Table of Contents



CAVIUM
    NETWORKS, INC.
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
 (In thousands, except share and per share data)
  Year Ended December 31,2007


2006


2005Revenue

$
54,203


$
34,205


$
19,377Cost of revenue


19,898



13,092



7,865Gross profit


34,305



21,113



11,512Operating expenses:Research and development


19,548



18,651



16,005Sales, general and administrative


14,688



10,058



6,840Total operating expenses


34,236



28,709



22,845Income (loss) from operations


69



(7,596
)


(11,333
)Other income (expense), net:Interest expense


(622
)


(707
)


(183
)Warrant revaluation expense


(573
)


(467
)


(411
)Interest income and other


3,458



345



355Total other income (expense), net


2,263



(829
)


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


2,332



(8,425
)


(11,572
)Income tax expense


(142
)


(560
)


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


2,190



(8,985
)


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










(100
)Net income (loss)

$
2,190


$
(8,985
)

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

$
0.08


$
(1.11
)

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


29,005,743



8,065,995



7,318,607Net income (loss) per common share, diluted

$
0.07


$
(1.11
)

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


32,431,976



8,065,995



7,318,607    48




---



##### Table of Contents



CAVIUM
    NETWORKS, INC.
  CONSOLIDATED
    STATEMENTS OF CHANGES IN MANDATORILY REDEEMABLE
 CONVERTIBLE
    PREFERRED STOCK AND STOCKHOLDERS EQUITY
    (DEFICIT)
 (In thousands, except share data)
  Mandatorily Redeemable












Notes





TotalConvertible









Additional


Receivable





StockholdersPreferred Stock



Common Stock


Paid-in


from


Accumulated


Equity/Shares


Amount



Shares


Amount


Capital


Stockholders


Deficit


(Deficit)Balance at December 31, 2004


20,990,809


$
61,735




8,233,939


$
8



633


$
(154
)

$
(40,263
)

$
(39,776
)Issuance of Series D Preferred Stock, net of issuance costs
    of $57


100,566



604
























Common stock issued in connection with early-exercises of stock
    options subject to repurchase











135,622



















Common stock issued in connection with other exercises of options











388,399



1



341











342Vesting of early-exercised stock options



















197











197Repurchase of shares of unvested common stock











(18,645
)






(4
)










(4
)Interest on notes receivable from stockholders























(2
)






(2
)Non-employee stock-based compensation



















62











62Stock-based compensation related to variable awards granted to
    employee



















23











23Reclassification of warrants to liabilities






(519
)























Forgiveness of note receivable from stockholder























104







104Repayment of note receivable from stockholder























52







52Net loss



























(11,672
)


(11,672
)Balance at December 31, 2005


21,091,375



61,820




8,739,315



9



1,252







(51,935
)


(50,674
)Common stock issued in connection with early-exercises of stock
    options subject to repurchase











33,868



















Common stock issued in connection with other exercises of options











568,766







1,349











1,349Vesting of early-exercised stock options



















141











141Repurchase of shares of unvested common stock











(32,599
)






(20
)










(20
)Stock-based compensation



















745











745Issuance of common stock in connection with warrants exercise











56,250



















Issuance of Series B preferred stock in connection with
    warrants exercises


179,976



1,094












134











134Issuance of Series D preferred stock, net of issuance costs
    of $15


1,032,037



8,965
























Issuance of Series D preferred stock in connection with
    warrants exercises


60,809



558












130











130Net loss



























(8,985
)


(8,985
)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 restricted stock unit











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 warrant
    exercise-net
    exercise











86,756



















Net income



























2,190



2,190Balance at December 31, 2007





$





40,307,361


$
40


$
175,540


$



$
(58,730
)

$
116,850    49




---



##### Table of Contents



CAVIUM
    NETWORKS, INC.
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
 (In thousands)
  Year Ended December 31,2007


2006


2005Cash flows from operating activities:Net income (loss)

$
2,190


$
(8,985
)

$
(11,672
)Adjustments to reconcile net income (loss) to net cash provided
    by (used in) operating activities:Forgiveness of note receivable from stockholder










104Stock-based compensation expense


1,869



745



85Amortization of warrant costs to interest expense


149



143



52Revaluation of warrants to fair value


574



467



511Depreciation and amortization


6,221



5,009



3,308Other


(20
)


10



81Changes in assets and liabilities:Accounts receivable, net


(2,520
)


(3,412
)


(2,084
)Inventories


(4,528
)


(2,919
)


30Prepaid expenses and other current assets


(322
)


(41
)


124Other assets


49



(101
)


(39
)Accounts payable


1,836



125



197Deferred revenue


825



408



220Accrued expenses and other current and non-current liabilities


(147
)


732



1,128Net cash provided by (used in) operating activities


6,176



(7,819
)


(7,955
)Cash flows used in investing activities:Purchases of property and equipment


(4,925
)


(2,075
)


(1,503
)Acquisition of business










(1,105
)Purchases of IP licenses and intangible assets


(847
)






Net cash used in investing activities


(5,772
)


(2,075
)


(2,608
)Cash flows provided by financing activities:Proceeds from term loan financing






4,000



Repayment of term loan financing


(4,000
)






Proceeds from issuance of convertible preferred stock, net of
    issuance cost






8,965



604Proceeds from initial public offering, net of bankers
    discount and commission


97,459







Payments of initial public offering costs


(2,791
)






Proceeds from issuance of common stock upon exercise of options


1,092



1,361



407Principal payment of capital lease and technology license
    obligations


(3,846
)


(2,915
)


(998
)Repurchases of shares of unvested common stock


(10
)


(20
)


(4
)Repayment of receivable from stockholder










52Proceeds from issuance of convertible preferred stock in
    connection with warrant exercise






778



Net cash provided by financing activities


87,904



12,169



61Net increase (decrease) in cash and cash equivalents


88,308



2,275



(10,502
)Cash and cash equivalents, beginning of period


10,154



7,879



18,381Cash and cash equivalents, end of period

$
98,462


$
10,154


$
7,879Supplemental disclosure of cash flow information:Cash paid for interest

$
473


$
564


$
131Cash paid for taxes

$
469


$



$
Supplemental disclosure of non-cash activities:Capital lease and technology license obligations

$
9,812


$
3,408


$
1,414Vesting of early exercised options

$
110


$
141


$
197Additions to property and equipment included in accounts payable
    and accrued expenses

$
1,057


$
486


$
Net exercise of common stock warrants

$
462


$



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

$
72,440


$



$
    50




---



##### Table of Contents



CAVIUM
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
  1.
    Organization
    and Significant Accounting Policies  Organization
    Initial
    Public Offering
    Summary
    of Significant Accounting Policies
  Basis
    of Consolidation
    Use of
    Estimates
    Cash &
    Cash Equivalents
    Allowance
    for Doubtful Accounts
    Inventories
  work-in-process first-in,
 51




---



##### Table of Contents



CAVIUM
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Property
    and Equipment
    EstimatedUseful LivesSoftware and computer equipment

1 to 5 yearsTest 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
     52




---



##### Table of Contents



CAVIUM
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31,2007


2006


2005Percentage of total revenueCustomer A


18
%


21
%


19
%Customer B


23



18



*Customer C


*



*



12Customer D


*



*



11All other customers


44



50



51Total


100
%


100
%


100
%     *
    
    represent less than 10% of the revenue  2007


2006Percentage of gross accounts receivable:Customer E


23
%


23
%Customer F


13



*All other customers


64



73Total


100
%


100
%     *
    
    Less than 10% of the consolidated accounts receivable for the
    respective period end.  Intangible
    Assets
    Revenue
    Recognition
   53




---



##### Table of Contents



CAVIUM
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        No. 97-2, Software Revenue Recognition SOP No. 98-9, Modification of
    SOP No. 97-2,
    Software Revenue Recognition with Respect to Certain
    Transactions.
     54




---



##### Table of Contents



CAVIUM
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Warranty
    Accrual
    As of December 31,2007


2006


2005(In thousands)Beginning balance

$
161


$
106


$
30Accruals for warranties issued during the year


241



140



76Settlements made during the year


(141
)


(85
)


Ending balance

$
261


$
161


$
106   Indemnities
    Research
    and Development
    Advertising
    Operating
    Leases
    Income
    Taxes
    Accounting
    for Stock-Based Compensation
  Accounting for Stock Issued to Employees
 55




---



##### Table of Contents



CAVIUM
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Accounting for Certain
    Transactions Involving Stock Compensation, an Interpretation of
    APB No. 25 Accounting for
    Stock-Based Compensation Accounting for Stock-Based
    Compensation  Transition and Disclosure.
      No. 96-18, Accounting for Equity Instruments That Are Issued to Other
    Than Employees for Acquiring, or in Conjunction with Selling,
    Goods or Services
    Year Ended December 31,2007


2006


2005(In thousands)Cost of revenue

$
43


$
9


$
Research and development


805



396



10Sales, general and administrative


1,021



340



75Total stock-based compensation expense

$
1,869


$
745


$
85     Other
    Comprehensive Income (Loss)
   56




---



##### Table of Contents



CAVIUM
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Cumulative
    Effect of Change in Accounting Principle
  150-5, Issuers Accounting under FASB Statement No. 150
    for Freestanding Warrants and Other Similar Instruments on
    Shares That Are Redeemable FSP 150-5. FSP 150-5 FSP 150-5,
    Recent
    Accounting Pronouncements
      Business Combinations
  Noncontrolling Interests in Consolidated Financial
    Statements,
 57




---



##### Table of Contents



CAVIUM
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  2.
    Net
    Income (Loss) Per Common Share  Earnings Per Share
    Year Ended December 31,2007


2006


2005(In thousands)Net income (loss)

$
2,190


$
(8,985
)

$
(11,672
)Weighted average common shares outstanding  basic


29,006



8,066



7,319Dilutive effect of employee stock plans


3,426







Weighted average common shares outstanding  diluted


32,432



8,066



7,319Basic net income (loss) per share

$
0.08


$
(1.11
)

$
(1.59
)Diluted net income (loss) per share

$
0.07


$
(1.11
)

$
(1.59
)     Year Ended December 31,2007


2006


2005(In thousands)Options to purchase common stock and common stock subject to
    repurchase


701



5,094



3,533Convertible preferred stock (as converted basis)






22,364



21,091Convertible stock warrants (as converted basis)






103



316   3.
    Inventories  first-in,
  As of December 31,2007


2006(In thousands)Work-in-process

$
8,092


$
2,069Finished goods


1,481



2,937$
9,573


$
5,006  58




---



##### Table of Contents



CAVIUM
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  4.
    Property
    and Equipment, Net    As of December 31,2007


2006(In thousands)Test equipment

$
5,587


$
1,418Software and computer equipment


12,738



7,178Furniture, office equipment and leasehold improvements


57



4018,382



8,636Less: accumulated depreciation and amortization


(6,774
)


(3,596
)$
11,608


$
5,040       5.
    Intangible
    Assets, net    As of December 31,2007


2006(In thousands)Developed technology

$
3,343


$
3,343Technology license


9,205



5,54412,548



8,887Less: accumulated amortizationDeveloped technology


(3,235
)


(2,375
)Technology license


(5,217
)


(4,610
)$
4,096


$
1,902    59




---



##### Table of Contents



CAVIUM
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  6.
    Accrued
    expenses and other current liabilities  As of December 31,2007


2006(In thousands)Accrued compensation and related benefit

$
1,010


$
851Accrued warranty


261



161Refundable deposits related to unvested employee stock option
    exercises


70



173Professional fees


285



583Income tax payable


231



558Other


396



527$
2,253


$
2,853   7.
    Notes
    Payable         60




---



##### Table of Contents



CAVIUM
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  8.
    Mandatorily
    Redeemable Convertible Preferred Stock and Stockholders
    Equity (Deficit)  Mandatorily
    Redeemable Convertible Preferred Stock
    As of December 31,2007


2006(In thousands, except share data)Mandatorily redeemable convertible preferred stock, par value
    $0.001Series A: 4,349,995 shares authorized;
    4,349,989 shares issued and outstanding at
    December 31, 2006 and none was issued and outstanding at
    December 31, 2007; none and $7,830 liquidation preference

$



$
7,773Series B: 7,612,431 shares authorized;
    7,564,448 shares issued and outstanding at
    December 31, 2006 and none was issued and outstanding at
    December 31, 2007; none and $15,885 liquidation preference






16,534Series C: 6,206,897 shares authorized;
    6,206,892 shares issued and outstanding at
    December 31, 2006 and none was issued and outstanding at
    December 31, 2007; none and $18,000 liquidation preference






17,973Series D: 4,765,835 shares authorized at
    December 31, 2006; 4,242,866 shares issued and
    outstanding at December 31, 2006 and none was issued and
    outstanding as of December 31, 2007; none and $27,908
    liquidation preference






30,157Total mandatorily redeemable convertible preferred stock

$



$
72,437   Warrants
  paid-in-capital.
  Number






Estimated FairSeries of

of Shares






Value Reclassified toConvertible

Subject to



Exercise


Additional Paid-in-capitalPreferred Stock

Warrants

Issue Date

Price


Upon IPO


Expiration DateB


47,619


November 1, 2002

$
2.10


$
568,000


October 31, 2012D


27,500


October 6, 2005


6.58



352,000


October 5, 2015D


27,500


June 19, 2006


6.58



352,000


October 5, 2015102,619








$
1,272,000      61




---



##### Table of Contents



CAVIUM
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Common
    Stock
    Common stock outstanding at December 31, 2006


9,365,600Common stock issued in IPO


7,762,500Conversion of mandatorily redeemable convertible preferred stock
    to common stock


22,364,378Common stock issued in connection with exercises of stock options


742,712Common stock issued in connection with the common stock warrant
    exercises


86,756Repurchases of shares of unvested common stock


(14,585
)Common stock outstanding at December 31, 2007


40,307,361   Stock
    Options and Unvested Common Stock
     62




---



##### Table of Contents



CAVIUM
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      EITF 00-23, Working Group Work Plan Issues Related to the Accounting for
    Stock Compensation under APB Opinion No. 25, Accounting for
    Stock Issued to Employees, and FASB Interpretation No. 44
    Accounting for Certain Transactions involving Stock
    Compensation
    Number of


Weighted-AverageUnvested Shares


Exercise/PurchaseOutstanding


PriceBalance as of December 31, 2004


1,335,113


$
0.34Issued


454,791



0.86Vested


(708,289
)


0.35Repurchased


(18,645
)


0.21Balance as of December 31, 2005


1,062,970



0.56Issued


400,023



2.95Vested


(558,184
)


0.60Repurchased


(32,599
)


0.62Balance 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



2.45  63




---



##### Table of Contents



CAVIUM
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Number


Weighted-Averageof Shares


ExerciseOutstanding


PriceBalance at December 31, 2004


1,326,061


$
0.30Options granted


1,754,366



1.05Options exercised


(524,021
)


0.80Options cancelled and forfeited


(86,236
)


0.42Balance as of December 31, 2005


2,470,170



0.72Options granted


2,434,750



3.42Options exercised


(602,634
)


2.26Options cancelled and forfeited


(80,882
)


1.57Balance 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



3.86       Outstanding Options


Exercisable OptionsWeightedAverage


Weighted





WeightedRemaining


Average





Average


AggregateNumber of


Contractual


Exercise


Number of


Exercise


IntrinsicExercise Prices

Shares


Term


Price


Shares


Price


Value$ 0.19- 0.80


544,722



6.15


$
0.29



436,729


$
0.281.02- 1.50


1,080,161



7.52



1.04



614,487


$
1.033.04- 3.74


1,624,072



8.14



3.07



536,441


$
3.075.42- 8.52


486,346



9.08



7.36



95,599


$
6.9727.00-31.54


184,700



9.66



28.57



13,173


$
27.17$ 0.19-31.54


3,920,001



7.93



3.86



1,696,429


$
2.02


$
76,133,920Exercisable


1,696,429



7.46



2.02











35,685,604Vested and expected to vest


3,621,177



7.90



3.79











70,557,025     64




---



##### Table of Contents



CAVIUM
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  For the YearEnded December 31,2007

2006Risk-free interest rate

3.29%-4.72%

4.36%-5.23%Expected life

4-6 years

4-5 yearsDividend yield

None

NoneVolatility

55%-56%

50%-60%         Restricted
    Stock Unit Awards
    Weighted-


Weighted-Number of


Average


AverageUnvested


Grant Date


Remaining


AggregateShares


Fair Market


Contractual


FairOutstanding


Value


Term (years)


Value(1)Non-vested at December 31, 2006





$








Granted


12,500



31.54Issued and released


(500
)









$
27.20Cancelled/Forfeited






Balance as of December 31, 2007


12,000







1.28     (1)
    
    Represents the value of Cavium stock on the date that the
    restricted stock units vest.     65




---



##### Table of Contents



CAVIUM
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2007Estimated values

$
31.54Risk-free interest rate


3.29
%Dividend yield


0
%     9.
    Income
    Taxes      Year Ended December 31,2007


2006


2005(In thousands)Domestic

$
11,037


$
17,877


$
(11,572
)Foreign


(8,705
)


(26,302
)


$
2,332


$
(8,425
)

$
(11,572
)       Year Ended December 31,2007


2006


2005(In thousands)Domestic

$
97


$
560


$
Foreign


45







$
142


$
560


$
  66




---



##### Table of Contents



CAVIUM
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31,2007


2006


2005Income tax at statutory rate


34.0
%


34.0
%


34.0
%State taxes, net of federal benefit


1.1







Alternative minimum tax


2.5



6.6



Change in valuation allowance


(31.4
)


(34.0
)


(34.0
)Other


(0.1
)






Total


6.1
%


6.6
%



%     As of December 31,2007


2006(In thousands)Deferred tax assets, non-current:Tax credits

$
5,987


$
4,155Net operating loss carryforwards


3,092



12,736Capitalized research and development


115



170Depreciation and amortization


2,834



1,087Other


1,108



930Gross deferred tax assets


13,136



19,078Less: valuation allowance


(13,136
)


(19,078
)Net deferred tax assets

$



$
      67




---



##### Table of Contents



CAVIUM
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Accounting for
    Uncertainty in Income Taxes
  and/or and/or
    Total(In thousands)Balance at December 31, 2006

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


40Gross increases related to current year tax positions


270Settlements


Expiration of the statute of limitations for the assessment of
    taxes


Balance at December 31, 2007

$
3,574        68




---



##### Table of Contents



CAVIUM
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  10.
    Retirement
    Plan    11.  Segment
    Information
  Disclosures About Segments of an
    Enterprise and Related Information
    Year Ended December 31,2007


2006


2005(In thousands)United States

$
32,748


$
19,483


$
10,292Taiwan


10,500



7,403



3,085China


3,367



2,290



1,865Japan


2,732



2,612



3,517Other countries


4,856



2,417



618Total

$
54,203


$
34,205


$
19,377   12.
    Commitments
    and Contingencies   69




---



##### Table of Contents



CAVIUM
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Capital Lease andTechnology License


OperatingObligations


Leases


Total(In thousands)2008

$
4,969


$
1,266


$
10,9322009


2,596



1,065



3,6612010


1,774



1,110



2,8842011






843



8432012






199



199Thereafter










9,339


$
4,483


$
18,519Less: Interest component


(809
)Present value of minimum lease payment


8,530Less: current portion


(4,471
)Long-term portion of obligations

$
4,059            70




---



##### Table of Contents



CAVIUM
    NETWORKS, INC.
  Schedule II 
    Valuation and Qualifying Accounts and Reserves
  Balance at


Charges to





Balance atBeginning


Cost and





End ofDescription

of Period


Expenses


Deductions


Period(In thousands)Year ended December 31, 2007Allowance for doubtful accounts

$
68


$



$
(30
)

$
38Allowance for customer returns


34



434



(329
)


139Income tax valuation allowance


19,078







(5,942
)


13,136Year ended December 31, 2006Allowance for doubtful accounts

$
73


$
55


$
(60
)

$
68Allowance for customer returns


37



123



(126
)


34Income tax valuation allowance


23,474







(4,396
)


19,078Year ended December 31, 2005Allowance for doubtful accounts

$
59


$
14


$



$
73Allowance for customer returns


58



183



(204
)


37Income tax valuation allowance


18,228



5,246







23,474    71




---



##### Table of Contents



Item 9.
    Changes
    In and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  Disclosure
    Controls and Procedures
  Rule 13a-15(e) Form 10-K.
  Form 10-K.
  Changes
    in Internal Control Over Financial Reporting
    Item 9B.
    Other
    Information   PART III  Form 10-K Form 10-K,
  Item 10.
    Directors,
    Executive Officers and Corporate Governance  Form 10-K,
      Item 11.
    Executive
    Compensation.   72




---



##### Table of Contents



Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters.      Item 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence.    Item 14.
    Principal
    Accounting Fees and Services.   PART
    IV  Item 15.
    Exhibits
    and Financial Statement Schedules      1.

Financial Statements:

45See 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:

71Schedule II  Valuation and Qualifying Accounts
    and Reserve3.

Exhibits:

74The 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.  73




---



##### 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 10, 2008/s/  Arthur
    ChadwickArthur
    Chadwick

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

March 10, 2008/s/  Kris
    ChellamKris
    Chellam

Director

March 10, 2008/s/  John
    JarveJohn
    Jarve

Director

March 10, 2008/s/  Anthony
    PantusoAnthony
    Pantuso

Director

March 10, 2008/s/  C.N.
    ReddyC.N.
    Reddy

Director

March 10, 2008/s/  Anthony
    ThornleyAnthony
    Thornley

Director

March 10, 2008  74




---



##### Table of Contents



EXHIBIT INDEX
  Incorporated by ReferenceExhibit



Schedule/

File



FilingNumber

Description

Form

Number

Exhibit

Date3
.1

Amended and Restated Certificate of Incorporation of the
    Registrant

S-1/A

333-140660


3
.3

4/13/20073
.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

2/13/200710
.1

Form of Indemnity Agreement to be 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

S-1

333-140660


10
.3

2/13/200710
.4

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

S-1

333-140660


10
.4

2/13/200710
.5

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

S-1

333-140660


10
.5

2/13/200710
.6

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

S-1

333-140660


10
.6

2/13/200710
.7

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

S-1

333-140660


10
.7

2/13/200710
.8

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

S-1

333-140660


10
.8

2/13/200710
.9

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

S-1

333-140660


10
.9

2/13/200710
.10

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

S-1

333-140660


10
.10

2/13/200710
.11

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

S-1

333-140660


10
.11

2/13/200710
.12*

Lease Agreement Amendment, dated March 6 2008, between the
    Registrant and MB Technology Park, LLC10
.13

Loan and Security Agreement, dated October 6, 2005, between
    the Registrant and Silicon Valley Bank

S-1

333-140660


10
.12

2/13/200710
.14

Loan Modification Agreement, dated January 3, 2007, between
    the Registrant and Silicon Valley Bank

S-1

333-140660


10
.13

2/13/200710
.15

Second Loan Modification Agreement, dated January 25, 2007,
    between the Registrant and Silicon Valley Bank.

S-1

333-140660


10
.14

2/13/200710
.16

Term Loan and Security Agreement, dated October 6, 2005,
    between the Registrant, Silicon Valley Bank and Gold Hill
    Lending 03, L.P.

S-1

333-140660


10
.15

2/13/2007




---



##### Table of Contents



Incorporated by ReferenceExhibit



Schedule/

File



FilingNumber

Description

Form

Number

Exhibit

Date10
.17

First Amendment to Loan and Security Agreement, dated
    October 24, 2006, between the Registrant, Silicon Valley
    Bank and Gold Hill Lending 03, L.P.

S-1

333-140660


10
.16

2/13/200710
.18

Form of Warrant to Purchase Shares of Series B preferred
    stock

S-1

333-140660


10
.17

2/13/200710
.19

Form of Warrant to Purchase Shares of Series D preferred
    stock

S-1

333-140660


10
.18

2/13/200710
.20

Consent, Assignment, Assumption and Amendment Agreement, dated
    February 5, 2007, between the Registrant, Silicon Valley
    Bank and Gold Hill Lending 03, L.P.

S-1/A

333-140660


10
.19

3/16/200710
.21

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
.22

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

S-1/A

333-140660


10
.21

4/6/200721
.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 Officer31
.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.