Marvell Executing On A Once-Underappreciated Transformation Strategy

Summary

• Marvell got top dollar from NXP Semiconductors for a collection of connectivity assets that weren't core to the company's strategy.
• 5G is a strong near-term (2-5 year) opportunity, while investments in custom ASIC and new Ethernet capabilities extend the growth runway.
• Marvell shares have outperformed the chip sector since my last article and it's harder to argue the shares are undervalued.

I liked Marvell (NASDAQ:MRVL) back in September of 2018, as I thought the Street was too focused on the near-term challenges of integrating Cavium and not enough credit to the transformation underway in the business. While the shares dropped another 20% from that point in time with the SOX, the shares have since rebounded more strongly, and the shares now sit about 20% higher than they were at the time of the last article (while the SOX is down about 4%).

I continue to like the direction Marvell is going. Significant wins in 5G (primarily with Samsung) could translate into more than $700 million of incremental revenue, and the company has been building up its ASIC capabilities such that I believe the company has a chance of emerging as a viable second-source rival to Broadcom (AVGO) in time and shifting more of the business’s center of gravity towards growth markets and away from storage.

What I don’t like so much is the current valuation. Marvell has attractive end-market exposure for the next 12-18 months and looks better-positioned for the near-term growth that Wall Street loves so much, but I think the valuation is a tougher sell now.

Getting Top Dollar For An Unwanted Business

Last week, basically in conjunction with earnings, Marvell announced that it had reached an agreement with NXP Semiconductors (NXPI) to sell its Connectivity portfolio to NXP for $1.76 billion in cash. This portfolio includes WiFi and Bluetooth assets, and not only are the current margins below the company averages, management had previously flagged the business as non-strategic and a potential sale candidate.

Reflecting the hot market for connectivity assets (you can cross-reference this with the Infineon (OTCQX:IFNNY) – Cypress (CY) and ON (ON) – Quantenna (

Analyst’s Disclosure:I am/we are long AVGO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.