Tuesday, February 27, 2007

Marvell (MRVL) Recovery?

Today Marvell (MRVL) was the one stock in the NASDAQ 100 to go up. I own the stock. The stock went up because Marvell reported its quarterly results after the market closed yesterday. In the analyst conference (my summary) it became clear that to a large extent Marvell bucked the downward sales trend that its rivals had experienced.

Marvell had a rough year in 2006, so a bad quarterly report would not be unexpected. They have the usual stock-option investigation going on. They bought the division of Intel that makes the XScale processor, among other things. Some analysts thought they paid to much money for it, since it was a money losing division for Intel. But they bought it for far less than what Intel had invested and it was not losing very much money. By combining the Intel intellectual property with their own circuits Marvell thought they could race to the lead in mobile processor technology. They were sure they could cut costs in the division, and yesterday said that process was going better than they expected.

While revenues from their other lines were about flat in the latest quarter (November 2006 to January 2007) this was better than the typical 5 to 10% downturns at competitors. Marvell thinks its numerous recent design wins mean that the normally seasonally down quarter we are now in will show a modest increase in revenues.

In 2006 Marvell's stock price peaked at $33.12 before sales to hard disk drive makers slumped. It has a high P/E ratio of 38, so it still has to grow quickly to justify even today's closing price of $20.46.

There are a lot of smart people in the semiconductor industry, but even among such a thoroughbred lot the Marvell crowd stands out. Whenever they enter a field they jump right to the cutting edge, often making products that companies who have been in the field for years cannot match. They are doing this now with video post processors for Blu-ray and HDTV.

I would not want to minimize the risk of owning a stock like Marvell, but the upside looks a lot better than the down side. One reason for caution is that while we know what revenues they have reported, we won't know how profitable the company really was until their stock-option accounting is complete and they release the results. Again, the information is there in the analyst conference (my summary) to make a good educated guess.

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