Sigma On The Rise, Marvell - Not Yet

Of the stocks in my portfolio, tracked by "Globes", Marvell Technology Group (MRVL) is set to report its results for the October quarter Tuesday after the bell, and Sigma Designs Inc. (SIGM) will report Wednesday.

Sigma is a rising star in the chip sector, and is now the leading player in technologies for IPTV, and the new Blu-ray disc format for DVDs. Marvell, on the other hand, is a star that has seen a rapid decline in its fortunes over the past two years, and which now appears to be a quarter or two away from a substantial recovery.

Having survived the options backdating fiasco by the skin of its teeth, Marvell now needs to appoint a full-time CFO in place of George Hervey who stepped down, and who still sits on the board at Saifun Semiconductors Ltd. (SFUN), although he will find himself leaving this role too in the near future once Saifun's sale to Spansion Inc. (SPSN) is closed.

Analysts expect Marvell to announce, either Tuesday or in the near future, a drastic cut in its workforce, a step that is vital if the company is to move back to high profitability in its new fiscal year beginning in February 2008. Marvell inherited two burdens when it acquired the DSPC handset processor division from Intel Corporation (INTC), which have weighed it down in the past year - a workforce that was too large for it, and production lines from Intel that have proved expensive to run.

No longer bound by its undertaking not to make any layoffs for the first twelve months following the acquisition, Marvell is now free to cut jobs, and it is already in the process of switching its production to cheaper lines at Taiwanese giant Taiwan Semiconductor Manufacturing Co. Ltd. (TSM).

In addition, the computer hard drive market, to which Marvell supplies chips through manufacturers such as Seagate Technology (STX), has been enjoying rapid growth in recent months, a development that will contribute to its latest quarterly results and to its guidance for the January quarter. This is borne out by figures for weekend sales which show that the big hits were not only players and laptops, but also hard drives with storage capacities of 500 and 1,000 Gb, which were sold for $80 and $200 each respectively.

Marvell's "sexy" markets are continuing to flourish, most notable of which is the one for WiFi chips. The biggest hits at present are Apple Inc.'s (AAPL) new handset, and chips for computer games consoles, and non-flash media players. Market projections expect sales to reach $710 million in October, an 8% increase over the preceding quarter, and guidance to point to $736 million revenue in the January quarter. In terms of earnings per share, Marvell is expected to post $0.08 per share for the October quarter and $0.09 in the January quarter, before options-related expenses and other costs.

Marvell's low margins are all the more noticeable when compared with those of Sigma, which is expected to report earnings per share of $0.54, up 21% on the preceding quarter, and a 27-fold increase over the corresponding quarter of 2006. This is why Sigma is currently traded at $53, compared with $23 a year ago, and a mere $8 just three months before that in the summer of 2006.

Sigma reached an all-time high of $60 at the beginning of the month, and has now retreated to its current price in the wake of the aggressive sell-off across the market. The company will have to beat the market estimates hands down in both its results and guidance, otherwise the current price will not hold for long either.

It looks likely to give investors a pleasant surprise in its core business - chips for IPTV set-top boxes. According to media reports, the roll-out of a substantial number of IPTV projects is now underway, and Sigma controls 70% of this market. It also has almost exclusive control over the market for solutions based on Microsoft Corp.'s (MSFT) operating systems.

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.