Marvell: Silver Lining In Thai Floods

Nov.23.11 | About: Marvell Technology (MRVL)

Marvell Technology Group (Nasdaq: MRVL) has been hit by the Thai floods, as half of the company's sales of processors originate in a fab located in the disaster zone. Nevertheless, Marvell's share price bucked the market on Friday, after publishing better than expected results, while its lower guidance -- due to the disaster -- was better than the market had feared.

Marvell CEO Sehat Sutardja drew investors' attention to the company's two fairly new growth engines, whose growth rates remind me of 2003-06:

The first growth engine is processors for 3G phones in China, mostly from devices sold by China Mobile Ltd. (NYSE: CHL).

The second is processors for SSD drives, which are still a marginal business for Marvell, but everyone who reads the forecasts for the industry understands that this market will grow strongly, up to 25% of the NAND market. It is known that Marvell's customers in this sector include Intel Corporation (Nasdaq: INTC).

As for the disaster in Thailand, the damage is more or less known. Sutardja chose to look at the silver lining for the server industry. The replacement of equipment lost in the floods will boost the server industry in general-- and Marvell in particular-- because the new equipment will be state-of-the-art, enabling server manufacturers to ramp up production for more advanced servers, and Marvell will have the best.

Even before the Christmas shopping season, UBS analysts noted a positive change in orders for semiconductor manufacturing equipment. Taiwan Semiconductor Manufacturing Company Ltd. (NYSE: TSM), one of the world's largest semiconductor makers, placed $689 million in equipment orders in the first weeks of the fourth quarter, compared with $503 million in orders in the third quarter as a whole. UBS noted a routine report by TSMC of a $18.5 million order from Nova Measuring Instruments Ltd. (Nasdaq:NVMI), a leading manufacturer of metrology solutions for semiconductors.

I do not know whether there is a link to this specific order, but market rumor says that TMSC will make mobile phone processors for Apple Inc. (Nasdaq: AAPL), which is seeking to reduce its dependence on Samsung Electronics Co. Ltd.

Published by Globes [online], Israel business news - www.globes-online.com - on November 22, 2011 Reprinted on Seeking Alpha with permission © Copyright of Globes Publisher Itonut (1983) Ltd. 2011

Disclosure: Author holds position in mentioned stocks as part of his Globes portfolio.