Convergence Device Components: Unwisely Beaten Up?

I had earlier covered Broadcom (BRCM), Marvell (MRVL), Micron (MU), and National Semi (NSM) in the series on the iPhone’s component ecosystem. Broadcom and Marvel were covered in the iPhone and the Future series as well. And this week, Vijay Nagarajan launched his deep-dive on Broadcom. Let's take a look at the financials in this post.

As I said in my earlier post, the iPhone is getting Broadcom more business. In August, Nokia selected Broadcom for supplying 65 nm single-chip baseband processor and power management units for its EDGE phones. Samsung is using its 3G baseband, power management, Bluetooth, 3G protocol stack software, and M-stream technology. These are all good indicators that Broadcom is a “player” in the red hot smartphone market that the iPhone has injected steroids into this year.

Broadcom recently reported its Q3 2007 results. Its net revenue was $950.0 million, up 5.8% q-o-q and 5.2% y-o-y, and its GAAP net income was $27.8 million ($0.05 per diluted share) compared with $110.2 million ($0.19 per diluted share) in Q3 2006. Its headcount increased by 287 in the quarter to of 6,114 employees.

During the quarter, Broadcom repurchased $4.9 million shares at a cost of $163.9 million, and had $182 million left in its $1 billion repurchase program started in February 2007. For Q4, it expects revenue to be in the range of $960 million to $990 million excluding the $40 million royalty payment expected from Verizon (VZ). Its stock is trading around $26 after hitting a 52-week low of $25.78 on December 18. Its market cap is around $14 billion. I am going to advise readers to reserve the decision on this stock until we have completed Vijay’s deep-dive analysis.

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Marvell recently witnessed the shipment of Samsung PDA phone, SPH-M4650, that included its PXA 300 application processor. This processor is also part of the LG-KC1 smartphone that started shipping in Korea in August this year. It looks like Marvell has bagged some critical design wins as well, and has good momentum with the Koreans.

Marvell recently reported its results for Q3 2008 that ended October 27, 2007. Its net revenue was $758.2 million, up 46% y-o-y and 15% sequentially, driven by strong demand for storage products, with revenue for hard disk drive products growing 16% sequentially. Its GAAP net loss was $6.4 million ($0.01 per diluted share), compared with GAAP net income of $6.0 million ($0.01 per diluted share) in Q3 2007.

The company's non-GAAP gross margin was 48.3%, which includes the fair market value adjustment of inventory supplied under the agreement with Intel. As per this agreement, Marvell is to purchase a minimum number of wafers through June 2008. The gross margin impact of the fair market value adjustment declined by approximately $17 million q-o-q.

Marvell also announced a cost savings plan that will reduce its workforce by approximately 7% or 400 employees, and reduce operating expenses by approximately $10 million per quarter. For Q4, it expects revenue to be around $780 million. Its stock is trading around $14, and it's market cap is around $8.4 billion.

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Micron recently reported its results for Q1 2008 that ended November 29, 2007. Its net sales were $1.5 billion, up 7% q-o-q. The company's net loss was $262 million ($0.34 per diluted share), compared with net loss of $158 million ($0.21 per diluted share) last quarter. The sequential growth was primarily driven by significant sales volume increases in memory products due to higher levels of production and strong demand. Its 300-millimeter fabs at Lehigh and Singapore are helping it to significantly bring down costs. However, ASPs decreased 20% and 30% for DRAM and NAND respectively over the already low prices of the previous quarter. This resulted in it recording a $62 million write-down of its finished goods and work in process inventories.

Its stock is currently trading around $7.5 after hitting a 52-week low of $7.37, Market cap is around $5.8 billion.

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National Semiconductor recently reported its results for Q2 2008 that ended on November 25, 2007. Sales were $499.0 million, up 5.8% q-o-q, but down 0.5% from $501.6 million in Q2 last year. This increase was driven by strong demand for its new analog products, primarily in the wireless handset and personal mobile device markets.

EPS was $0.33, up 10% q-o-q and 22% y-o-y. Its gross margin was 64.4%, up from 63.0% in Q1 and 58.9% in Q2 last year. This increase was driven by improved product mix of higher-value analog products, and higher volume of shipments. It repurchased $280 million of stock with $600 million remaining for future stock repurchases. In September, it declared a cash dividend of $0.06 per outstanding share of common stock.

For Q3, revenue is expected to be seasonally down by 1 to 5%. Its stock is currently trading around $23 after hitting a 52-week low of $21.54. Its market cap is around $6 billion.

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All four of these semi stocks are at, or near their 52-week lows. Broad IC market forecasts are soft, and that is taking the market down. However, my sense is that the convergence device market is only at the beginning of its incredible growth curves. These stocks are aligned with that trend. Does that make at least some of them good BUYs at these rock-bottom prices?