Marvell, Orbotech Benefiting from China

Includes: AVGO, MRVL, ORBK
by: Shlomi Cohen

What I heard on Thursday from Marvell Technology Group (Nasdaq: MRVL) founder and CEO Dr. Sehat Sutardja and CFO Clyde Hosein was much more than cautious optimism. Their post-results discussion with analysts reminded me of Marvell's good days, in the first years after its acquisition of Israel's Galileo in the beginning of the decade, when every quarter was better than its predecessor by double digit figures.

It's hard not to get excited about a company that had $803 million revenue in its fiscal quarter ended October 31, a rise of 25% compared with the previous (fiscal second) quarter, and which reported pro-forma net profit of $232 million, double the previous quarter.

Half of Marvell's' revenue comes from the data storage sector- hard disk controllers for computers of various sectors, including enterprise. Quick growth has come--and likely will continue to come-- from primarily the cellular and wireless communications sectors. These sectors grew about 40% in the quarter, and reached a fifth of total sales.

Marvell only entered the cellular market in recent years, after buying the cellular processors unit from Intel (Nasdaq: INTC). As a very small producer, compared with the size of the market, Marvell was considered until recently a one-customer company since it supplies nearly all the processors for Blackberry maker Research In Motion (RIMM), and did not have a significant presence among other producers. Its rival, Broadcom (BRCM), in contrast, which also entered the market late, was able to get into two companies leading the cellular device market Samsung and Nokia (NYSE:NOK).

Marvell's real penetration among other telephone makers will come from China, because over the past two years it has collaborated with the world's largest (by market cap) telecommunications company, China Mobile. That is the first company in the world to develop a proprietary operating system for smart phones, the OPhone platform, as part of its efforts to increase revenue from the 3G network which it is launching this year across Asia. As a result of the collaboration between the two, Marvell solutions processors and software- will be used in a lot of devices introduced by China Mobile in the coming years, and also in devices based on OPhone-based devices to be introduced outside of China.

For Orbotech, New TVs Are a Goldmine

Orbotech's (NASDAQ:ORBK) presentation tomorrow at a Barclays conference in San Francisco especially interests me, not only because Orbotech generally stays away from conferences, but also because it is stingy in releasing information about orders, big or small, despite the fact that with sales of $100 million in a quarter it must have many orders.

For Orbotech, the sector with the most potential for strong growth over the coming two years is equipment for inspecting LCD TV screens of all sizes. Analysts are unanimous in their view that over the four major sales events of the period Black Friday, Christmas, the day after NewYear's day, and the Chinese New Year LCD screens were and will be among the big hits. Sales are not collapsing this year, nor is inventory too large - so expectations are that screen makers will put into effect the plans they have on the shelves to make large investments in new and existing production lines. Some investments have been announced and were put into action, and some are on the way.

The main driver for the LCD screen market, which will bring a lot of gains to Orbotech, is the plummeting sales of "old technology" CRT televisions in developing countries, primarily China, and the concurrent move to LCD screens. According to analysts, 2009 should see a sharp 40% drop in CRT television sales, compared with a drop of about 15% in each of the previous three years. That is, even if the overall TV market grows only 5% next year, the LCD niche will grow more than 22%. Nearly every expansion of a factory, or building of a new one (and in China 7-8 new factories are planned) means a lot of orders for Orbotech, since it has a market share of over 70%.

Published by Globes [online], Israel business news - - on November 17, 2009; Reprinted on Seeking Alpha with permission

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