Marvell Technology - At These Levels Shares Are Worth The Gamble

| About: Marvell Technology (MRVL)

Shares of Marvell Technology (MRVL) lost some 5% over the past trading week. The semiconductor manufacturer reported its third quarter results on Thursday for its fiscal 2013.

Third Quarter Results

Marvell reported third quarter revenues of $781 million which is down 18% from the year before and down 4% compared to the second quarter. Revenues beat analysts consensus of $774.2 million.

Gross margins fell 460 basis points on the year to roughly 52%.

GAAP net income fell almost 65% on the year to $69 million, or $0.12 per diluted share. Earnings fell by 26% compared to the second quarter. Non-GAAP net income fell by 54% to $113 million, or $0.20 per diluted share. Adjusted earnings per share were in line with expectations.

Marvell repurchased roughly 23 million shares for a total consideration of $203 million during the third quarter. The company retired 150 million shares so far this year, approximately 22% of its shares outstanding.

CEO and Chairman Sehat Sutardja commented on the results, "Our results in the third quarter were affected primarily by the slowdown in the PC demand. Despite the near-term softness in PCs, we are focused on growing out overall storage business through share gains in HDDs and growth in SSDs. We remained confident in our investments and multiple long-term growth opportunities. We also remain committed to returning cash to our shareholders through our share repurchase and dividend programs."

Segmental Information

Storage revenues fell 3% compared to the second quarter, making up 47% of total sales. Share gains for the 500 gigabyte per platter technology drove relative outperformance in HDD.

Networking revenues fell 1% on the quarter, representing 23% of total sales. Double digit growth in enterprise switches was more than offset by an inventory correction at infrastructure related customers.

Mobile and wireless revenues fell 10%, making up 25% of total sales. Lower demand for gaming solutions and an inventory correction resulted in lower sales.


Marvell expects fourth quarter revenues to come in between $700 and $740 million, which represents a 8% revenue decline on a sequential basis. Especially the mobile and wireless revenues are expected to fall, some 30%, due to seasonality and product transitions at smartphone customers. The networking and switching business is expected to show growth.

Non-GAAP earnings per share are expected to come in between $0.13 per share, plus or minus a couple of pennies. GAAP earnings per share are expected to come in around $0.08 per share.


Marvell ended its third quarter with roughly $2.0 billion in cash, equivalents and short term investments. The company operates without the assumption of debt, for a sizable net cash position.

For the first nine months of its fiscal 2013, Marvell generated revenues of $2.4 billion. The company net earned $256 million, or $0.45 per diluted share. The company is on track to generate annual revenues around $3.1-$3.2 billion, with earnings coming in around $280 million, or $0.50 per diluted share.

The market currently values the firm at $4.1 billion, which values operating assets around $2.1 billion. This values the firm's operating assets at 0.7 times annual revenues and 7-8 times annual earnings.

Marvell currently pays a quarterly dividend of $0.06 per share, for an annual dividend yield of 3.2%.

Investment Thesis

Year to date, shares of Marvell have lost roughly half of their value. Shares rose from $14 in January to highs of $17 in February. From that point in time, shares have gradually lost terrain, currently exchanging hands around $7.40 per share.

After reaching all time highs around $35 per share in 2006, shares have gradually lost terrain. Shares hit lows of $5 at the end of 2008 before recovering to $20 in 2010. The company consolidated annual revenues between $3.0 billion in 2009 to $3.1-$3.2 billion for its fiscal 2013. The company has been profitable each year, with net income roughly doubling from $147 million to $280 million.

Marvell's mobile ambitions are seriously impacted by the implosion of Research in Motion (RIMM) over the past years. While the introduction of the BlackBerry 10 would likely boost demand, the Canadian company has decided to use Qualcomm's (QCOM) chips. The mobile market remains a drag in the short term, but provides the most interesting long term opportunities.

Marvell expects initial revenues in the first quarter of its fiscal 2013 from the first generation unified platform which addresses both TD-SCDMA and W-CDMA markets. The platform is well received by the market in a short time. The guidance for a 30% revenue decline on the quarter is particularly poor.

Marvell remains a leader in the storage business which is a domain which sees great developments in today's world. Many developments are geared toward the cloud-business. The networking business remained steady, but the industry is growing rapidly. Increased data and demand from mobile devices and smart TVs boost demand.

As a sign of confidence, Marvell indicated that it would possibly boost the share repurchase pace. The company has roughly $400 million in share repurchases being authorized at the moment. Marvell is not alone, other manufacturers including Applied Materials (AMAT) and Advanced Micro Devices (AMD) are suffering as well. Applied Materials trades at 1.4 times annual revenues, while financially troubled AMD trades at merely 0.3 times annual revenues.

As always, the visibility for chip manufacturers remains very low, especially in today's environment which is dominated by developments in the smart phone area and cloud storage. Yet Marvell's valuation is appealing and the company remains profitable despite the operational problems.

Shares might be worth the gamble.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.