Most of the big tech companies are in the race called “Internet of Things” and no one wants to be left behind in this revolutionary change that is poised to hit the industry. IoT thought leader Cisco created a big buzz earlier this year when it put a $19 trillion figure on the size of IoT. Since then, a number of companies have come forward boasting their IoT credentials, with chipmakers leading the charge. In a score of my previous articles I have already discussed how the likes of Avago, Broadcom, and Skyworks have showcased their IoT portfolios, and now Marvell Technology (MRVL, Financial) is joining the race.
Before we dive deep into an analysis of Marvell’s IoT moves, let us take a few moments to analyse the second quarter results reported by the company in August. The company reported revenues of $961.5 million in the second quarter, up 19.1% year over year. Revenues marginally surpassed the Zacks Consensus Estimate of $961.0 million and also came within management's guided range of $940.0-$980.0 million. One of the primary drivers of growth in the revenue was better-than-expected demand from storage and networking business. By end markets, storage revenues were positively impacted by strong demand from SSD customers and share gains in the HDD segment. Revenues from storage end market were up 6% on a quarterly basis. The networking business increased 6% sequentially as the company witnessed better-than-expected demand for its products due to growth in enterprise and data center solutions.
Marvell’s IoT strategy
In the month of June, Marvell unveiled its "full range of Internet of Things solutions with the industry's most complete line of wireless microcontroller platform." The company made a big statement with this launch, as it is targeting a comprehensive range of applications with its IoT portfolio. According to Marvell, its silicon platform solutions for the IoT will address the following areas: wearables, home automation, home security, personal health care, smart appliances, accessories and remote controls, automotive, lighting, industrial Internet, and more.
Evidently, the company is trying to touch each corner of the IoT opportunity, and if it succeeds in any one, then its financial performance can take off to an unimaginable extent. Marvell is delivering a mix of hardware and software to tap the IoT opportunity. In the latest earnings call, the management highlighted that Marvell enhanced its family of SoC with Wi-Fi and Bluetooth. These SoC target a broad spectrum of IoT for wearable and smartphone products which are currently seeing a lot of customer traction.
The benefits to Marvell
With a mix of hardware and software expertise, Marvell is trying to accelerate the deployment times of original equipment manufacturers for bringing new IoT applications. Microcontrollers will be key to the adoption of the Internet of Things, as independent devices such as smart clocks and thermostats will need to communicate with each other and process the information exchanged. So far, microcontrollers have found uses in TVs, car ECUs, microwave ovens -- basically anything that needs an input and has to process information.
Now, with the Internet of Things, it is estimated that there will be 50 billion connected objects by 2020. Each of these will require microcontrollers for reasons stated above, indicating that Marvell is sitting on a big addressable market.
Marvell also sells storage chips, which is another way it might profit from the Internet of Things. Seagate and Western Digital contribute approximately 36% to Marvell's top line, and both of these storage companies should see a bump in demand due to the growing requirement for storage. The IoT will result in huge streams of data which will be stored in data centers.
Data center capacity will have to be upgraded to address the huge influx of data. Already, both Western Digital and Seagate are seeing strong demand from enterprise customers, despite a slowdown in the PC market. Since Marvell supplies chips to the two biggest storage device manufacturers, it can attack the IoT opportunity from another angle as well.
Marvell's microcontrollers and storage clients place it in a solid position to leverage the IoT opportunity. The company has relationships with the right companies, and it is focusing on a smart strategy of delivering a combined hardware-software solution to customers. Therefore, Marvell is another of those few companies that stands to benefit largely from the IoT opportunity in the long-run.