Are SiRF and Marvell a Good Match?

Includes: MRVL, SIRF
by: Vijay Nagarajan

In my last post on SiRF Technology Holdings (SiRF), I mentioned that SiRF will likely merge or get acquired. I finished with a teaser suggesting a merger with Marvell (NASDAQ:MRVL) as one of the options. Let us look at why this is possible. Before you read on, I should warn you that this is just speculation, so take it with a grain of salt and view it as more of a synergy analysis.

To reassert my point on SiRF, the company might have stayed a little too long as a GPS company without acquiring other connectivity solutions or pairing up with a complementary solution provider. With mobile driving GPS growth, SiRF may find itself marginalized in this space despite its leadership. You can find earlier coverage on this topic here and here.

Marvell, on the other hand, lacks GPS capabilities. Sehat Sutardja, Marvell’s CEO, suggested that GPS has to be commoditized to have only an incremental cost impact on the mobile phone silicon. All said and done, if it cannot have a competitive GPS solution in the next couple of years, it will lose its baseband communications processor customers. The integration of application and communication processors also implies potential share loss in the application processor market. You can read more on Marvell’s connectivity solutions capability in my valuation series here and here.

If SiRF merges with Marvell, the latter will have a complete portfolio of connectivity solutions complementing its WLAN, Bluetooth and FM capabilities. It will also get DVB-H for mobile broadcasting. This will allow the Santa Clara-based Marvell to develop its own mobile platform if it finds relevant demand. I agree that Marvell already has enough financial headaches and operating expense issues to take care of, and that these will certainly be deterrents against any new merger. But we should note that SiRF is a fairly nimble company, so Marvell should get favorable margins from the fabless SiRF.

The combined entity can definitely benefit from synergies. Both companies have Research In Motion (RIMM) as its customer. But in the future, this position will be challenged given aggressive pricing and bundling from the leading vendors. Broadcom (BRCM), both companies’ main competition, has the potential to displace both of them from these accounts. A merger can help ward this situation off. Marvell’s efficiency can help lower the costs of GPS as it envisions. Besides, SiRF’s strong IP position in GPS will give the company good leverage during licensing discussions.

Finally, while I don’t want to read too much into it, I cannot ignore the Banatao connection. Diosdado Banatao, is now the chairman and interim CEO of SiRF. Given his reputation as a successful serial entrepreneur, his appointment as the interim head itself seems to point to an M&A. it also makes the Marvell angle more likely. He was intimately involved with Marvell as an early stage investor and as a board director until 2003.

He knows the Sutardjas very well. He knows Marvell’s work culture, strengths and product portfolio and should have a better sense of the synergies between these companies than anyone else out there. Therefore, we can trust him to at least give this idea some careful consideration.

In summary, it is possible that SiRF and Marvell may merge. It may not be a bad strategy for either company. I will leave the price of such a deal to a SiRF valuation analysis that I am planning to do soon.

(For the interested reader, I have done an extensive valuation analysis of Marvell which will complete this weekend. You can read the first few articles of this series here, here and here.)

Disclosure: Long SiRF at the time of writing.