Business description: Marvell Technology Group, Limited (MRVL)
Marvell is a fabless semiconductor provider of application-specific standard products. It develops highly valuable system-on-a-chip (SoC) devices. Its product portfolio includes devices for data storage, enterprise-class ethernet data switching, ethernet physical-layer transceivers (PHY) , mobile handsets and other consumer electronics, wireless networking, personal area networking, ethernet-based personal computer (PC) connectivity, control plane communication controllers, video-image processing and power management solutions. Its Wi-Fi chips are used in consumer devices and gaming systems to connect users to the internet. These devices are a key part of the IoT business segment.
Marvell’s products serve a diverse range of applications used in carrier, metropolitan, enterprise and PC-client data communication and storage systems.
Recently, Marvell reinforced its PHY segment through the acquisition of a business specializing in the design of networking devices. Marvell outsources its production to third-party foundries.
Investment case:
Marvell’s traditional business was geared towards system-on-a-chip (SoC) mainly used for broadband connections, networking, printers and Wi-Fi. It was able to combine two functionalities, i.e. airtime and storage, giving its company a business edge. It became a key provider for Western Digital and Seagate, both leaders in the storage business using hard disk drive (HDD) technology.
In recent years, Marvell has also developed a solid networking chip business, including Wi-Fi chipsets used for various purposes. Generally, the company has shown a capacity to adapt quickly to new business opportunities and to innovate digital chips as required by the market.
We believe that MRVL will be a major player in the IoT field through its wireless chip segment. The growth in the IoT business segment is expected to come from utilizing low cost wireless chips on unlicensed spectrum’s. Hence, opening-up a vast “connectivity-opportunity” for devices which are not presently connected. In terms of business opportunity, the global M2M connection market will grow from just 1 billion in 2011 to over 4 billion in 3 years time. The end-consumer segment, i.e. the Personal Area Network (PAN) market opportunity delivered through Bluetooth, ZigBee, Wi-Fi, Z-Wave, etc., is expected to have a CAGR of about 27% over the same period. Marvell can expect to grab a sound share of this segment too.
Furthermore, Marvell also delivers concepts for the 4G LTE chipset. This market segment is expected to do well in the short run as its wireless baseband chipsets are in high demand in the Chinese end-consumer market segment. Although this market is expected to show solid growth figures for the years to come, the competition is significant with key providers such as Qualcomm, MediaTek and Speadtrum having entered the same market.
MRVL’s longer term perspectives are good and one should expect annual revenue growth in the region of 5%. Shares presently trade with a PE01 of 15.0 times and a PE02 of 14.3 times, which is quite attractive given the business segment. The stock is well covered by 32 analysts; close to half rate the stock as a “strong buy” or “buy”, while half rate it at “hold”, and the remaining four analysts rate it at “sell”. The average positive analyst target price is in the region of USD 18.50 which offers an upside upside potential of about 20% from its present price level.
Strengths and weaknesses analysis / Fundamental analysis:
Strengths:
- MRVL may move more of its business towards the IoT business segment,
- MRVL is a key supplier to the HDD industry where it is still gaining market share,
- MRVL has excellent business prospects in 3G and 4G technology (and good exposure to the Chinese market),
- MRVL has a strong and innovative R&D culture.
Weaknesses:
- MRVL has lost some market share due to the introduction of new Apple related technology,
- MRVL is competing with Qualcomm for the 3G and 4G market segment,
- About 45% of the company’s revenues rely on the older PC-related storage industry,
- The end market for Marvell’s products is largely consumer sentiment driven, and therefore highly volatile,
- The time to market is becoming shorter than ever in the PC industry, therefore a high pace must be maintained in R&D.
Company profile, investment opportunity and asset management integration:
| Metric | Rating |
| Operational risks: | Above average |
| Expected growth: | Well above average |
| Long term value creation: | Well above average |
| Positive competitive advantage: | Above average |
| Management excellence: | Average |
| Financial strength: | Average |
| Investment orientation: | Group “Best-in-Class”: Technology, IoT |
Price ranges:
| Buy: | Only forcustomers |
| Sell | Only forcustomers |
| Stop-loss: | Only forcustomers |
| Fair-value: | Only forcustomers |