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Should a partnership between SanDisk, Toshiba and M-Systems materialize, a small incidental beneficiary from this will be Tower Semiconductor (Nasdaq: TSEM), which will produce the x4 controllers, just as it is currently producing MLC controllers for SanDisk.

Last Friday, I was scheduled to visit the company’s foundry as part of a tour for analysts, but unfortunately it had to be canceled because of the missile attack the day before in which two children were tragically killed in neighboring Nazareth.

I originally planned to add Tower to my portfolio after this visit, and I am still going to add it despite its cancellation, for as they say, “Buy when the shooting starts.” My principal reason for adding Tower is because I think the company will report a strong quarter this week and will also provide good guidance.

A month ago, during a presentation in Tel Aviv, SanDisk CEO Harari said of Tower, “I’m doing very well there.” I, on the other hand, am not doing well at all with my holding in Marvell Technology Group (Nasdaq: MRVL). A few months ago, the company announced a two-for-one stock split, but since then, the market has made its own unexpected split in the price, down from $74 at the end of January to $34 last Friday. Marvell’s management never dreamed of a price like this when it first announced the split and had it known, it would have abandoned the idea.

What stocks like Zoran (NASDAQ:ZRAN), Broadcom Corporation (Nasdaq: BRCM), and Marvell all have in common is that they all operate in the field of chips for all kinds of electronic gadgets and devices, and all three also have options affairs to deal with. No one knows whether the falls in these stocks are the result of fears that the electronics market is cooling off or fears over options. Zoran and Marvell have both denied any wrongdoing, although they nevertheless have not yet published the findings of the investigation committees that they themselves set up.

Broadcom made an official announcement last Thursday following the publication of its quarterly results, and said it found irregularities in the options dating back to the term of the person who served as CEO until three and a half years ago, Dr. Henry T. Nicholas III. The options affair prevented Broadcom from publishing a full report on time, which could result in the company being delisted from Nasdaq. In addition, Broadcom’s guidance for the third quarter ($900 million), was $40 million lower than the market’s forecast before the posting of its results, all of which sent the stock tumbling to $23, the price it was at in May 2005.

I expect Marvell’s quarter, which ends this week and will be reported on August 17, will be a strong one, and it is highly likely that its guidance for the October quarter will once again not be lower than the market’s expectations. Marvell is not exactly in the same markets as Broadcom, and the accrued inventory which Broadcom has talked about consists of chips for digital converters and perhaps also for ADSL applications, fields in which Marvell does not operate. Broadcom said the inventory problem would be resolved in the fourth quarter.

Marvell’s collapse happened in three stages. First came the news of the acquisition of what was DSPC from Intel; then came the options affair, followed by fears of a slowdown in the field. I feel that there is no basis to any of these fears, but barring the publication of an unexpected profit warning, we’ll know for sure on August 17.

Either way, both Broadcom and Marvell have not seen p/e ratios and sales multiples like these for many years, and time will tell whether such ratios represent bargain basement prices, or a sign of an impending slowdown.

Published originally by Globes [online], Israel business news - www.globes.co.il
© Copyright of Globes Publisher Itonut (1983) Ltd. 2006. Republished on Seeking Alpha with full permission.

Source: Broadcom, Marvell and Tower Suffering From Common Ills