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Here's Why Marvell Technology Is a Solid Buy

June 06, 2014 | About:
rusticnomad

Rustic Nomad

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Marvell Technology (MRVL) looks solid for fiscal 2014. The chipmaker’s shares have almost doubled so far, despite a possible $1.17 billion fine for a patent infringement lawsuit by Carnegie Mellon University hanging over its head.

But it hasn’t lowered its outlook as investors are seen building their hopes around the stock backed by robust performance of its clients like Western Digital, Seagate Technology and Samsung. These are tailwinds for Marvell as they place it in a good position to benefit from the storage and mobile markets. Also, it wasn’t surprising when Marvell once again turned in a solid performance in the recently reported quarter and posted impressive outlook for the upcoming quarters in the fiscal year 2014.

A Concern

As far as the possible fine is concerned, Marvell seems to have it covered, which is why we should be focusing on its prospects going forward. The company has experienced tremendous growth in storage and mobile -- which together account for 77% of its overall revenue -- and expects the momentum to continue in the future as well.

Despite weakness in the PC market, the company continues to perform well in the storage business. It has been gaining market share for its hard-disk drive (HDD) controllers. Also it has gained adequate traction in the market as demand from customers is rising continuously for non-PC applications and a stabilizing storage industry.

Strong Clients

Moreover, the company enjoys strong relationship with storage giants such as Western Digital and Seagate who continue to make their presence felt in the storage market. Western Digital accounted for nearly 25% of Marvell Technology’s revenue in the previous quarter. Thus is the largest customer for the company.

Also, the fact that Marvell customer Western Digital has been making some impressive moves to strengthen its SSD business could be another tailwind for it. According to IDC, the enterprise SSD market is expected to triple by 2017, from $2.5 billion in 2012, and Western Digital is aware of this opportunity.

Western Digital recently completed the acquisition of sTec for $340 million as it looks to bolster its position in the enterprise SSD market. Additionally, Western Digital’s revenue from non-PC applications now stands at 53%, up from 35% five years ago. All in all, these developments suggest that Marvell could gain big from its biggest customer in the future.

More Drivers

Another key growth driver that is supplementing its growth in a big way is the mobile and wireless business. Revenue from the segment surged 60% on a sequential basis on the back of solid demand from its Chinese customers. Also, unit shipments of its W-CDMA and TD-SCDMA 3G products doubled in the reported quarter. In addition, Marvell began shipping its 4G LTE solution in Asia, which will help the company to yield better returns in the upcoming quarters.

More than 10 new smartphones and tablets launched during the quarter were based on its 3G platform, with China Mobile is using Marvell’s platform for its first branded smartphone. Given Marvell’s presence and strong sales in China, the company looks to be in a good position to benefit from the roll out of 4G LTE in the nation.

In addition, The Chinese Ministry of Industry and Information Technology recently issued initial LTE network access licenses for LTE smartphones, including those powered by the Marvell 4G LTE. Also, Marvell’s relationship with China Mobile could prove handy as the world’s largest telecom company is all set to roll out its 4G service next month.

Apart from this, Marvell is counting on various design wins it has rolled out to Samsung for the Galaxy series of phones and tablets. For instance, Samsung utilized Marvell's dual-core chip platform in its 7-inch Galaxy Tab 3. Also, analysts at Wedge Partners are of the opinion that Marvell is gaining share at Samsung at Broadcom’s expense. Also, Samsung is reportedly ramping up production of its next flagship and company is expected to release the device in March next year, which indicates that Marvell could see a boost in orders from Samsung.

Conclusion

All in all, Marvell looks pretty well-positioned going forward. The stock doesn’t look too expensive at 14 time’s forward earnings and a dividend yield of 1.60% makes the deal sweeter. Throw in the prospects of the SSD industry, an uptick in the HDD market, and Chinese smartphone growth, and it becomes clear that Marvell is a potential winner.


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