Chip maker Marvell Technology Group Ltd. (MRVL) is a leading semiconductor company, with more than one billion chips shipped per year. Marvell has expertise in microprocessor architecture and digital signal processing, drives multiple platforms including high volume storage solutions, mobile and wireless, networking, consumer, and green products. With the help of its world-class engineering and mixed signal, Marvell has delivered critical building blocks to its customers and given tough competition to its peers in such a dynamic market.
Marvell Technology recently announced its first-quarter earnings results. Despite a slight drop in revenues, the company results beat Wall Street's expectations. The company earned (excluding special items) 19 cents per share on an adjusted basis in the latest quarter. Analysts, on average, were expecting adjusted earnings of 14 cents per share. CEO Sehat Sutardja said in a statement that the first quarter results were at the high end of the spectrum, mainly due to better seasonal demand and gains in storage and networking markets.
Semiconductor Market for 2013:
According to the HIS iSuppli Semiconductor Manufacturing & Supply market tracker report from information and analytics provider IHS, the semiconductor industry is headed for moderate growth this year after extremely tough market conditions in 2012, with revenues and silicon demand alike to be powered by key consumer electronic segments such as wireless, televisions and computing.
The report stated that global semiconductor industry revenues are expected to grow 6.4 percent this year to $322.3 billion. Revenues last year had fallen to $303.02 billion, down from $310.21 billion in 2011. The projected revenue growth this year is expected to be a 4.6 percent increase in silicon demand to shipments of 9.55 billion square inches, compared to 9.12 billion square inches last year and 9.16 billion square inches in 2011.
The drop in revenues last year were the result of a slumping consumer spending on electronic goods, especially as consumer purchases represent nearly 60 percent of semiconductor industry revenues and silicon demand. However, the global economic climate is much more optimistic this year. Initial indications show that despite excessive capacity, the semiconductor supply chain has been able to reduce channel and finished goods inventory, and is also composed to begin reordering. Demand will start appearing in the latter portion of the first quarter, with silicon orders set to increase.
The above chart shows the percentage price change of Marvell Technology compared to the semiconductor sector and the S&P 500, in the last six months. You can clearly see from the chart that Marvell Technology's stock price has outperformed the sector and the S&P 500 price appreciation of 23.05 percent and 17.06 percent, respectively. The most important thing to note here is that the stock price appreciation evidently reflects Marvell Technology's performance in the period where the semiconductor market starts recovering.
The above chart shows the performance of Marvell Technology with respect to its competitors, SLI Corporation (SLI), STMicroelectronics (STM) and Texas Instruments (TXN). The stock price of Marvell Technology has also outperformed its competitors' price appreciation during the recovery period. Though these historic results ignore the financial performance of the company, this gives you an idea of its performance in the market's recovery period.
Multiple analysis is also important here to get an idea about how the company is performing relative to its competitors and industry. This gives you a clear picture of whether the company is undervalued or overvalued.
The above table represents the valuation of the company as compared to its competitors and the overall industry using key valuation metrics. The P/E, P/B and P/CF ratios of the company are remarkably below those of its competitors and the industry average. That evidently indicates the company is highly undervalued as compared to its competitors. This analysis greatly indicates a strong upside potential for investors.
Despite the fact that the company has outperformed its competitors, the company's multiple shows that the company is highly undervalued. Second, the company's $200 million share buyback in the first quarter and payment of quarterly dividends is a good sign for investors regarding the financial strength of the company. Third, the semiconductor market is also recovering, which will help the company to improve its performance in the coming year. I think this stock will add value to its stockholders in the long run.