Marvell's Mini Advantage

Former "Globes" correspondent Eli Landau has provided some important statistics on telecommunications in his weekly blog, "Read it Now." In this week's edition he has included a survey conducted by Gartner which reveals that sales of cellular handsets rose 21.3% to 991 million units in 2006. Gartner predicts that this will rise to 1.2 billion units in 2007. This says a lot of things about many fields, but as far as the capital market is concerned, it indicates that the explosion of information and games technologies will continue, so the market is not likely to have a dull year in 2007.

If there are more mobile handsets in circulation, companies such as Marvell Technology Group (Nasdaq: MRVL) will have a lot more business. Marvell, as it will be recalled, acquired Intel Corporation's (Nasdaq: INTC) cellular processor division, the one which was once Israeli (and was called DSPC) and which Intel acquired for $1.6 billion. Seven years later, in June 2006, Marvell bought it from Intel for $600 million.

It appears that Marvell has quietly and swiftly moved this business on to Taiwan Semiconductor Manufacturing Co. Ltd. (NYSE: TSM), the world's largest semiconductor fab. Marvell has done this in order to be able to refocus on the production of minute chips, and according to investment house Pacific Growth Equities, which issued an update for the company on February 21 in which it rated it "Buy," these chips will come onto the market by 2008, much earlier than the experts predicted.

This division, whose acquisition by Marvell raised eyebrows far and wide, is already manufacturing and marketing the PXA320 processor for Apple Inc.'s (Nasdaq: AAPL) iPhone, which under Intel's ownership was called the Monahan Application Processor. Experts claim that with the help of the new division, Marvell is set to take a fair-sized chunk out of the wireless telephony and smart electronics games markets. Since reaching an all-time high in January 2006, Marvell's stock has fallen 44%. At the current consensus multiple of 33 for 2007 it is not cheap, but the way things look at present, this will be corrected upward. The one important thing that Marvell does have is an outstanding management team, and this is the real reason for the premium that the stock has always been given, and is still getting, despite the falls in price.

MRVL 1-yr chart

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.