Greenlight Capital Q4 2012 Investor Letter (David Einhorn):
“Marvell Technology (NASDAQ:MRVL) was our biggest loser in 2012. MRVL shares fell from $13... an end-of-year jury verdict of over $1 billion for infringement on certain patents held by 85 to $7.26 during the year. Earnings disappointments earlier in the year were followed b Carnegie Mellon University. Having reviewed the proceedings, our view is that this is a case of a novel interpretation of the law by a local judge, combined with a hometown runaway jury. Although the legal system is inherently a crapshoot, we think that there are many reasons to expect the award to be substantially reduced or eliminated, either by the trial judge or on appeal. There are many grounds, but one of the simplest is that most of the damages were awarded based on foreign sales that are generally not protected by U.S. patents. The jury found that since the product was “designed and tested” in the U.S., damages were payable even though the manufacturing and sales happened abroad.
Though we’d love to just admit we are wrong, sell the stock, and move on, we continue to like the opportunity here. MRVL is on the cusp of a large product transition which, to put it mildly, is not in the valuation. A year ago we were feeling pretty discouraged about our Sprint position, but we re-evaluated and determined that while the stock was down for good reason, our overall thesis was intact. It turned out to be a good decision. We have similarly re-evaluated and decided to buy even more MRVL. We expect its shares to sprint higher in 2013."
Company History and Business,
Here’s a good resume from Wikipedia:
“Marvell is a producer of storage, communications and consumer semiconductor products.
Founded in 1995, Marvell Technology Group Ltd. has operations worldwide and approximately 5,700 employees. Marvell’s U.S. operating headquarters is located in Santa Clara, California and Marvell has international design centers located in the U.S., Europe, Israel, India, Singapore and China. Marvell has corporate offices in 16 countries besides the US. A leading fabless semiconductor company, Marvell ships over one billion chips a year. Marvell’s expertise in microprocessor architecture and digital signal processing drives multiple platforms including high volume storage solutions, mobile and wireless, networking, consumer, and green products.
Marvell manufactures a wide array of products including high-performance processors, broadband & wireless transceivers, storage controllers, and LED processors.”
As you can see by yourself, on a price to book valuation standing point, Marvell is now trading with at a significantly cheaper price than its competitor. And Marvell bought back a significant amount of shares , Over the past 10 quarters, they repurchased and retired approximately 184 million shares or about 27% of outstanding share:
Book Value per share
Book Value per share
As you can see for yourself, is has no debt, and a good current ratio: [b]
2012 Annual Report page 31:
“Dr. Sehat Sutardja, our President and Chief Executive Officer, and Weili Dai, who serves as the Vice President and General Manager of Communications and Consumer Business of Marvell Semiconductor, Inc, are husband and wife, and Dr. Sehat Sutardja and Dr. Pantas Sutardja, our Vice President, Chief Technology Officer and Chief Research and Development Officer, are brothers. Together, these three individuals held approximately 18% of our outstanding common shares as of January 28, 2012.”
A little more research made me find that this family-controlled company has a culture of efficiency and innovation. It is quite an outstanding culture. The Sutardja brothers are real geniuses in their field and as the financial results show us, they are really good businessmen as well. The fact that they buy back their shares when the stock is trading at a cheap price relative to its book value sounds to me to be a management taking care to increase the value for its shareholders.
Mrs. B of Technology:
But the real treasure of Marvell is Weili Dai. She likes to talk of efficiency working 24/7 while maintaining a focus on innovation. As you can see in the picture, although she is rank #89 women who rules the world according to Forbes power women list, she still works in a cubicle, a good sign that although she had good success building a multi-billion business, she can keep here foot on the ground and be far from being ego-maniacal.
According to Mrs.Dai the secret that have made here so successful come from Teamwork, believing in yourself, do what you are passionate about, dedication, hard work and commitment. Here dream is to bring the innovation to serve the people, she also think that to win the game as a team is the best accomplishment.
Video Mrs.B of Technology
Video, Tech Wonder, Weili Dai: Tips for Women in Biz
I highlight for you some risks from the annual report:
“Changes in general economic and political conditions and specific conditions in the markets we address, including the continuing volatility in the technology sector and semiconductor industry.”
“Significant portion of our business is dependent on the HDD industry, which is highly cyclical, experiences rapid technological change, is subject to industry consolidation and is facing increased competition from alternative technologies.”
“Our sales are concentrated in a few customers, and if we lose or experience a significant reduction in sales to any of these key customers, or if any of these key customers experience a significant decline in market share, our revenues may decrease substantially.” …. “Net revenue from the three largest customers in each respectivefiscal year combined represented 38%, 44% and 44% of our net revenue in fiscal 2012, fiscal 2011 and fiscal 2010, respectively.”
Marvell has a low level of debt, good liquidity, cheap base on book value per share and really good management. There is a lot of risk from on economic side with a lot of uncertainty presently. The business model carries a lot of risk, too, as a big percentage of the income relies on few costumers. Even if the price is cheap compared to others it’s far from a Graham net-net. I still think it’s a pretty good idea for the value investing contest as I’ve found really few other options.