Marvell's Not So Marvelous Quarter

Includes: AVGO, MRVL
by: Shlomi Cohen

After 34 consecutive quarters of consistent growth, Marvell Technology Group (Nasdaq: MRVL) disappointed investors last Thursday, and once again the media mentioned the company by name in a negative context; “Not so marvelous” was the phrase (see conference call transcript). Make no mistake, Marvell has posted sales growth for the 35th consecutive quarter, only this time it slightly missed the analysts’ forecasts and also lowered its sales guidance for the rest of 2006. The company won’t even mention profit, as this issue has been put on hold until the completion of the inquiry into the options.

The main cause of investor disappointment was the extremely low-growth gigabit Ethernet chip field, but to judge by the moderate response by the stock to last week’s warning and missed forecast, this could be a case of cautious respect on the part of investors. Put differently, the situation may not be as bad as it seems, although investors are using the fog of the upcoming options inquiry and the completion of the acquisition of the Intel Corp (Nasdaq: INTC) division in two months, to reassess all the company’s forecasts for 2007.

Marvell ended the week 8% higher due to the strong market, despite falling 7% in Friday’s session. It looks to me like the investors avoided offloading the stock at any price on Friday, after they observed the conduct of its main competitor Broadcom Corp (Nasdaq: BRCM). After sinking to a low of $22 a few weeks ago after the news about the company’s options policy and the lowering of forecasts, Broadcom has made a comeback, soaring by more than 35% to close at $33 last Friday.

In 2007, Marvell will become a very big player in the fastest growing field in the electronics sector - cellular phones - and it will face tough competition from chip giant Texas Instruments (NYSE: TXN). By then Marvell will have almost all the chip systems that are used in cellular phones, including special applications such as the one it revealed before the publication of its reports; a single system combining wireless communications chip and Bluetooth.

Marvell’s success in 2007 will depend largely on its ability to turn around the loss-making cellular chip division it is acquiring from Intel for $600 million. CEO Sehat Sutardja believes the division will turn a profit within one to two years. This statement by Sutardja has more than meets the eye, since he was the one who took Marvell, through a process of internal growth and numerous acquisitions, from a company with a market cap of a few million dollars, to its present market cap of $11 billion.

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