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Consider a scenario in which you were the sole owner of a business that had generated the following free cash flow over the past 13 years:

1999200020012002200320042005200620072008200920102011
FCF (MIL)$5.8$0.0$25.4$12.0$54.6$175.8$303.8$156.6$63.9$630.3$771$1,103$682
FCF/Share$0.02$0.00$0.06$0.03$0.10$0.29$0.48$0.27$0.11$1.00$1.18$1.63$1.09

For every Dollar invested in net working capital and PP&E, your business had generated in revenue and adjusted (cash) EBIT:

1999200020012002200320042005200620072008200920102011
Revenue$1.78$0.72$1.28$1.69$1.44$1.70$1.43$1.19$1.55$2.10$1.80$2.02$1.88
Adj. EBIT$0.06$0.05$0.02$0.13$0.26$0.32$0.56$0.32$0.08$0.51$0.68$1.45$1.05

Revenue had grown/contracted as follows:

1999200020012002200320042005200620072008200920102011
-77%101%75%62%49%36%34%29%2%-5%29%-6%

Recently, your business is experiencing a slowdown, along with many competitors and major customers. Your revenues in Q1-12 were flat versus a year ago. Q2-12 was off 9%, and Q3-12 will be down as well. This is partly due to (1) macroeconomic factors (2) your specific business cycle and (3) a shift in consumer preference away from your products.

It isn't a complete disaster. In spite of the headwinds, your business generated free cash flow of $358 million or $0.64 per share in the first two quarters of 2012.

You are working on making adjustments, which could take a while to complete. Bottom line is that things are looking tough and there is a lot of uncertainty.

Over the past two years, you spent a combined $1.9 billion on research & development and generated free cash flow of $1.8 billion. So I will make you a great offer. I will buy your entire business for $2.3 billion right now so you don't have to deal with future uncertainty. How about it?

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This is more or less how investors are valuing Marvell Technology (MRVL) once we exclude its $2.1 billion cash from the equation.

What I find interesting about MRVL (and this generally true for semi stocks) is how investors value it over the cycles, going from extreme optimism to extreme pessimism. Take a look at its stock price since the company went public in 2000.

Period I: From September 2000 to April 2001, the stock falls 90% from $25 to $2.50 as the tech bubble bursts.

Period II: From April 2001 to January 2006, the stock climbs from $2.50 to $35 (14x!) as earnings expand, helped by a leveraged asset bubble economy.

Period III: January 2006 to November 2008, the stock falls 86% from $35 to $5 as the home-bubble bursts inducing a full-blown financial meltdown.

Period IV: November 2008 to April 2010, the stock climbs from $5 to $22 as the financial crisis is averted.

Period V: April 2010 to today, stock falls from $22 to $8.00 due to a slowdown in PC demand and the view that PC is probably dead. Management has made matters worse by missing guidance and the CFO has left.

Could this be the end of the road for MRVL? I doubt it. Most likely, this stock will be a multiple bagger over the next few years, if not sooner. Approx. 50% of its revenues are tied with hard disk drives, 25% with mobile and 25% with networking. I don't think any of these businesses are gone for good.

There are still a handful of analysts recommending the stock, while 20 or so have downgraded it. When the last analyst is done downgrading, that probably would be the best signal that the stock has bottomed and ready to climb again.

Source: If History Is A Reliable Guide, Marvell Technology Is A Bargain