Chipmaker Marvell Technology (NASDAQ:MRVL) reported better-than-expected fourth quarter results recently. But the company provided a bleak outlook that drove the shares down after touching a 52-week high. Let’s overlook this near-term outlook for now and try to find the two factors that could secure Marvell’s growth going forward. Before that, a quick recap on the latest earnings results won’t be a bad idea.
Last Quarter Recap
Marvell’s fourth quarter numbers were good enough. Revenue grew 20% while adjusted earnings of $0.21 per share registered a growth of 53%. In fact, revenue came well above the company’s guided range. Solid growth in storage and networking businesses drove the quarter’s results. Marvell’s mobile business was weak mainly because some of its clients delayed their product launches. The wireless connectivity business lagged because of seasonal decline in the demand for gaming consoles.
- Warning! GuruFocus has detected 6 Warning Signs with MRVL. Click here to check it out.
- MRVL 15-Year Financial Data
- The intrinsic value of MRVL
- Peter Lynch Chart of MRVL
For the first quarter, which is the company’s seasonally weak quarter, Marvell expects most of its end markets to remain soft. Storage, networking and wireless connectivity end markets will be weak, while mobile end market would go strong with support from 4G LTE platform ramp.
Ample Opportunity in Storage Business
Major storage vendors are shifting their focus from the deteriorating PC industry to the more profitable enterprising storage space. This has actually benefited Marvell, which had its fate closely tied to PCs.
Marvell is going strong with its storage business that provides "controllers and systems-on-chips" for the hard disk drives (HDD) and solid state drives (SSD). During the quarter, the chipmaker gained share in the HDD space owing to increased demand from storage customers — mainly for non-PC devices. The company’s storage clients include behemoths like Western Digital (NASDAQ:WDC) and Seagate (NASDAQ:STX), who have witnessed a good demand for their drives for the non-PC applications such as consumer electronics, external storage and so on.
The company observed huge demand for its SSD products, too. Its blue-chip customers, Western Digital and Seagate, are focusing more on the SSD market by acquiring new businesses and rolling out high-performance drives. Western Digital acquired SSD vendors like Virident and STEC last year to strengthen its footprint in the marketplace. Seagate, on the other hand, is continually rolling out advanced SSD products to meet growing needs.
As per research firm IDC, the SSD market could generate revenues of $7.2 billion moving into 2017, up from $2.5 billion recorded in 2012. SSD vendors will pounce on the opportunity and Marvell could be one of the key beneficiaries.
4G LTE Opportunity Heating Up
Marvell’s performance in the mobile segment was not so impressive during the quarter, although significant order ramp for its 4G LTE (long term evolution) products was observed. LTE is a standard to be followed by the 4th generation wireless communication. The LTE standard will allow 4G networks to process data 10 times faster than the 3G network.
Marvell expects most of the 4G LTE traction to come from China. In December 2013, China approved 4G LTE licences to the three biggest state-owned telecom carriers — China Mobile (NYSE:CHL), China Unicom Hong Kong and China Telecom. Marvell has wide exposure in the region, and its chips are already being used in China Mobile’s Wi-Fi device (mobile hotspot).
According to research firm IHS Suppli, 4G subscribers could reach 439.9 million in 2017, and China Mobile would have the largest share — roughly 52%. With the 4G license now activated, China Mobile has clinched a deal with tech giant Apple (NASDAQ:AAPL) to sell the latter’s iPhones in China — the world’s largest smartphone market. This development bodes well for Marvell as well.
Apart from China, Marvell sees 4G LTE opportunities ramping up in North America too.
Marvell’s storage business brings in the largest share of revenue. The company’s association with the two most veteran storage players, Seagate and WD, is expected to create ample opportunities for the chipmaker. The next big catalyst for Marvel is the 4G LTE space. In the past six months, the stock’s return has been 25.9%. With 4G orders in the cards, the company's stock has earned an upgrade from Thomson Reuters to “Buy.”