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Marvell Technology Group (MRVL) is a fabless semiconductor provider of application-specific standard products that develops SoC (System on Chip) devices, and now holds a wide product portfolio with diverse applications. While previously in late December 2012 MRVL had some legal troubles involving a patent dispute with Carnegie Mellon, the stock has since experienced a significant rally upwards, going from the low $7's to over $10. While still far from its highs in 2010 and 2011, MRVL now holds a substantial valuation of over $5 billion.

Most recently, MRVL reported its Q1 earnings for the fiscal year 2014, with revenue of $734 million, and GAAP net income of $53 million. MRVL's revenue represents a decrease of 5% from the fourth quarter of fiscal 2013, and an 8% decrease from revenue in the first fiscal quarter of 2013. MRVL's results were on the higher end of expectations, and despite the drop from previous quarters, could not be considered disappointing for long-term investors who are well-versed on MRVL. MRVL stock did react fairly strongly to the earnings release at first, but soon came back down and now trades at the same price as it did before releasing earnings. There are now a few considerations for MRVL for those contemplating taking a long position:

  • MRVL has naturally been affected by the slump in the PC industry, which has occurred largely due to the proliferation of new smartphones and tablets that many consumers prefer buying over a new PC. This mainly affects MRVL's Storage segment. But MRVL remains confident that the demand for HDD (Hard Disk Drive) storage will continue to remain strong, and in fact, HDD OEM's have not experienced a substantial drop. Most promisingly, MRVL's SDD (Solid State Drive) business experienced substantial growth in Q1, largely due to strong partnerships. MRVL's storage business makes up just over half of its revenue and is thus its most important segment. While external factors (primarily the state of the PC industry) are uncertain, so far MRVL's results here have been encouraging.
  • Hybrid storage devices pose a threat to traditional HDD and SDD storage devices. According to MRVL CEO Sehat Sutardja, MRVL's technology partnerships will allow the company to benefit from a growth in the market for hybrid storage in future, though at this stage it's not clear how significant this will be.
  • While MRVL's storage business was strong in Q1, it was let down by its mobile and wireless segment, which declined by 24%. Management expects mobile to recover in the next quarter as more progress is made, and its wireless combo solutions (which have applications for a wide range of devices) also have potential for growth. MRVL management believes its mobile and wireless segment was in a trough (the lowest point before recovering) in Q1, and a recovery should be made when its mobile solutions become integrated with more Tier 1 OEM's (already one Asian Tier 1 OEM has started producing a new smartphone and tablet based on MRVL's dual core platform). In the wireless department, MRVL has made significant progress with its 4G Long Term Evolution (LTE) modem, and very recently announced a fully integrated, quad-core 5-mode Cat 4 LTE solution for the 4G market. Currently MRVL is in the early stages and awaits certification in North America (its LTE solution has already passed certification in China), after which it should be able to find an OEM to use its LTE solution in a smartphone within 2013. In Q1, mobile and wireless represented about 18% of overall sales, which is significant enough that an improvement in future quarters in this segment will be of major interest to shareholders.
  • MRVL's networking segment was mostly flat (down 2% sequentially), but with continued investment and more partnerships, it is expected that the market will grow "low to mid single digits sequentially." MRVL is investing in building more advanced PHY chips, and network processors. The rate of growth for this segment is not expected to be especially high in future quarters (compared to the mobile and wireless segment, for example), but represented 24% of total sales.
  • MRVL has maintained an attractive quarterly dividend ($0.06 per share) and has continued a share repurchase program. Over the past 11 quarters, 204 million shares were repurchased, with 20 million shares repurchased in Q1. Share repurchasing and a dividend bode well for MRVL investors, and this is unlikely to discontinue in the near future.

Future Outlook

We can see that MRVL management is confident that revenue for most of its segments will increase in future quarters, and at its current price (below $12) it appears to be reasonably valued. I believe the most interesting thing to take note of for future quarters will be MRVL's mobile and wireless business, which has reasonable chances of recovery from its substantial drop in revenue in Q1. If that segment is brought up then we can expect MRVL stock to improve significantly.

Source: Marvell Technology Group Seems Reasonably Valued