Marvell Technology (MRVL) makes semiconductor chips for hard disk drives, cell phones, networking and other devices. They have long dominated the HDD market, but have struggled in the smartphone market. In their second quarter of fiscal 2011 (Q2), ending July 30th, we probably saw an inflection point for smartphones based on Marvell chips. This space should be closely watched in Q3 and Q4.
Marvell's stock price is still at bargain levels, at about 10x non-GAAP trailing earnings. Partly this is due to macroeconomic fears affecting the entire market, but more particularly Marvell fell off a recent 52-week high of $21.89 on January 18 due to poor results in Q4 of 2010 and Q1 of 2011, when revenues fell to $802 million, which was down 6% y/y. A few weeks ago it hit $11.94; Friday it closed at $12.89.
That period of weakness was partly due to slower than expected sales of chips for hard drives (HDD) and networking, but most visibly was due to slow sales of chips for RIM's Blackberries. Given that Marvell execs have talked for years about conquering the smartphone market as they once conquered the HDD market, this led many analysts to conclude that Marvell was simply out of the race to provide CPUs for smartphones.
The smartphone chip market is certainly extremely competitive, perhaps the most competitive semiconductor segment today. Marvell has been competing in the U.S. against the likes of Qualcomm (leader in CDMA technology), nVIDIA, Texas Instruments, Samsung, and Apple, which makes its own ARM-based phone CPUs. They have spent years and vast sums of money on R&D, essentially subsiding smartphone chip development with profits from their HDD chips. In the U.S. smartphone market, except for being in a couple of BlackBerry designs and sometimes supplying non-CPU chips for phones (for Bluetooth and Wi-Fi), they have been an also-ran.
Meanwhile, Marvell produced the only one-chip solution for the Chinese communication standard called TD-SCDMA. China Mobile, the largest Chinese wireless company (600 million customers), invested vast sums to develop a TD-SCDMA network, now in place in most Chinese cities. Marvell has worked closely with Chinese companies on this project, bringing about 1000 engineers to the table. Also called OPhones, these smartphones run software on top of Android. Marvell is now referring to them as TD phones. The first generation of TD phones, released in 2010, were expensive and did not sell in large numbers. Essentially they tested the system.
Q2 2011 was when TD smartphones first shipped in sufficient numbers to be meaningful for Marvell investors. Over 20 models are available from manufacturers like ZTE, Motorola, Huawei, and Samsung. TD smartphone revenue roughly doubled in Q2, causing Marvell's wireless segment revenues to increase 18% in the quarter. For Q3 double digit revenue growth for TD smartphone chips is the expectation. Marvell is also sampling solutions for the LTE smartphone market in China. Again, expect fierce competition, but Marvell should win a share of Chinese LTE slots in 2012.
Meanwhile HDD revenue may be sluggish due to the slow PC growth rate, but it generates a lot of cash. Cash flow from operations in Q2 was $263 million. Free cash flow was $235 million. Cash and equivalents balance ended at $2.40 billion, up sequentially from $2.27 billion. Marvell repurchased $136 million, or 9 million shares, in the quarter and has authorized $1.5 billion for further repurchases.
The best cure for the low stock price, to my ears, was hearing that one use for cash could be starting to pay dividends. Compare Marvell's PE ratio to a semiconductor company like Microchip (MCHP) that does pay dividends, and you can see that semiconductor investors are more interested in dividends than they were a few years ago. However, it would be a big change for Marvell, so don't count on it.
Disclaimer: I am a long-term investor in Marvell stock
See also:
http://www.marvell.com/
My August 18, 2011 Marvell (MRVL) analyst call summary
My May 26, 2011 Marvell (MRVL) analyst call summary
My March 2011 Marvell (MRVL) analyst call summary
Keep diversified!
Showing posts with label BlackBerry. Show all posts
Showing posts with label BlackBerry. Show all posts
Sunday, August 28, 2011
Monday, May 30, 2011
Marvell Technology Sees Higher Q2
Marvell Technology (MRVL) makes semiconductor chips for hard disk drives, cell phones, networking and telecommunications. Recently the going has been rough for Marvell stockholders, as reflected in its stock price. After a high of $22.87 in April 2010, the stock hit a 52-week low at $13.87. After the Marvell analyst conference call, on Friday the stock jumped 11%, from the Thursday May 26 close of $14.56 to the Friday close of $16.17. So is that it for Marvell, or are we starting a new ramp?
Marvell's management described the results for Q1 fiscal 2012 ending April 30, 2011 as a low point in their cycle. Partly this was the usual seasonality as consumer end products build in Q2s and Q3s. But it also reflected poor sales to RIM for Blackberry models, a slow growth rate in the hard disk drive market, and slow new product ramps. In each case Marvell makes one or more mixed digital and analog chips for the end products.
Revenue for Q1 was $802.4 million, down 11% sequentially from $900.5 million and also down 6% from $855.6 million in the year-earlier quarter. Revenue was at the very low end of guidance. I think the stock had been shorted on the theory they would actually miss guidance, and they did miss Street estimates.
However, Marvell reported that things are already picking up in Q2 and the long-promised Marvell Inflection Point may finally make an appearance in Q3. Q2 revenues are now expected between $870 to $910 million, with non-GAAP EPS of about $0.37, which would support a stock price far higher than Friday's close.
The change in fortunes has several factors. Marvell is leading (or certainly one of the top 2 leaders) in the Solid State Drive market, which is ramping pretty nicely as prices drop and people see the advantages of SSDs. It is also a leader in chips for high-end networks. In the smartphone market we know the competition is intense, but Marvell providing the core chips for the Chinese TD-SCDMA standard based OPhone market. While OPhones started to be available in 2010, they are expected to ramp quickly as 2011 progresses. We are talking potentially 600 million OPhone customers, which makes the fight over American market share seem like a global side show.
Marvell is also sampling solutions for the LTE smartphone market. Again, expect fierce competition, but Marvell should win a share of slots in 2012.
I own Marvell stock and understand the risk of competing against the talented people at other semiconductor companies.
See also:
http://www.marvell.com/
My May 26, 2011 Marvell (MRVL) analyst call summary
My March 2011 Marvell (MRVL) analyst call summary
Tuesday, March 8, 2011
Marvell Technology: What Inflection Point?
Marvell Technology (MRVL) makes semiconductor chips for hard disk drives, cell phones, networking and telecommunications. Although for the most part Marvell has had a brilliant run since it was founded in 1995, recently the going has been rough, as reflected in its stock price. After a 52-week high of $22.87 last April, the stock closed at $15.81 yesterday, then bounced back a bit today. The release of quarter results on Thursday (the 3rd) and the analyst conference call caused a big sell off Friday, to $16.13, after closing Thursday at $18.22.
Should Marvell be abandoned, or is this a buying opportunity?
First, keep in mind that Marvell has a fiscal year that ends on January 30th. Their Q4s are typically seasonally slower than their Q3s because shipments of chips going into devices sold over the holidays typically are made in Q3. Q1 fiscal 2012 will end at the end of April; Q2 at the end of July; Q3 at the end of October.
On the other hand, a technology company with rapidly ramping revenues can sometimes overcome seasonal declines. Marvell has lined up two sequential q/q declines. In Q2 revenues were $896.5 million; in Q3 $959.3 million; in Q4 $900.5 million; and for Q1 guidance is for $800 to $850 million. That is worse than normal seasonality.
Last year Marvell CEO Sehat Sutardja, at the Marvell March 4, 2010 analyst conference call, predicted that Marvell would reach an "upward inflection point" within the next twelve months. We seem to be in a downward deflection point instead. Now Mr. Sutardja is saying that revenues (and profits) will ramp again in the second half of this year (more precisely, the second half of fiscal 2012). Should we discount his prediction, given he made it before and reality proved him wrong?
Let's look at why the prior inflection point prediction went awry. The hard drive market was not as robust as expected, mainly because global PC sales did not grow much in 2010. Marvell already has more than half of the market for the controller and other chips in hard drives, and in the latest quarter those still accounted for almost half of Marvell's revenue. Even with new products ramping up, the decline in hard drive chip revenue put a big dent in projections. Marvell is competitive in controllers for solid state drives too, but is not dominant there.
The other problem was Research in Motion (RIM), although Sehat did not mention them by name, everyone knew which customer he was talking about. It isn't that RIM (maker of Blackberry phones) is itself in trouble, despite competition from Apple and Android-based devices. Marvell makes chips for only a couple of RIM models. For those models there was an inventory issue, not with too much inventory, but with a change that results in Marvell holding inventory for RIM. The main issue is that in many developing nations RIM is moving 2.5G phones, and Marvell does not have a chip for 2.5G. However, Marvell should have such a chip later this year.
So two major sources of revenue Marvell counted on were down in Q4 and will continue to be down in Q1. But the big issue, the lack of an inflection point, has to do with OPhones in China. These phones sold slowly late in 2010. Sehat believes that is mainly a matter of introducing them and prices that were too high on the original models. During 2011 a number of Marvell based OPhones will be introduced in China at far more attractive prices, yet which maintain Marvell's own profit margins.
Hence, still an upward inflection point. I don't blame potential Marvell investors to take a wait and see approach. The problem (with not buying at today's stock price) is that Marvell, even in these "bad" quarters, is generating a lot of cash. The low price/earnings ratio for the stock reflects the "show me" attitude about OPhones. If you wait for the revenue ramp to be in the rear-view mirror, the stock is going to be a lot more expensive.
So watch for OPhone news out of China. Maybe consumers there will want iPhones or other alternatives instead. But if hundreds of millions buy the new Marvell-based OPhones, Sehat and crew are going to look a lot more far-sighted than they do right now.
I own Marvell stock and understand the risk of competing against the talented people at Qualcomm, NVIDIA, Apple, etc. Right now I would not sell my Marvell stock for less than $30 per share. Come this fall, depending on the OPhone ramp, I may need to change my estimate of its value.
See also:
http://www.marvell.com/
My March 2011 Marvell (MRVL) analyst call summary
Should Marvell be abandoned, or is this a buying opportunity?
First, keep in mind that Marvell has a fiscal year that ends on January 30th. Their Q4s are typically seasonally slower than their Q3s because shipments of chips going into devices sold over the holidays typically are made in Q3. Q1 fiscal 2012 will end at the end of April; Q2 at the end of July; Q3 at the end of October.
On the other hand, a technology company with rapidly ramping revenues can sometimes overcome seasonal declines. Marvell has lined up two sequential q/q declines. In Q2 revenues were $896.5 million; in Q3 $959.3 million; in Q4 $900.5 million; and for Q1 guidance is for $800 to $850 million. That is worse than normal seasonality.
Last year Marvell CEO Sehat Sutardja, at the Marvell March 4, 2010 analyst conference call, predicted that Marvell would reach an "upward inflection point" within the next twelve months. We seem to be in a downward deflection point instead. Now Mr. Sutardja is saying that revenues (and profits) will ramp again in the second half of this year (more precisely, the second half of fiscal 2012). Should we discount his prediction, given he made it before and reality proved him wrong?
Let's look at why the prior inflection point prediction went awry. The hard drive market was not as robust as expected, mainly because global PC sales did not grow much in 2010. Marvell already has more than half of the market for the controller and other chips in hard drives, and in the latest quarter those still accounted for almost half of Marvell's revenue. Even with new products ramping up, the decline in hard drive chip revenue put a big dent in projections. Marvell is competitive in controllers for solid state drives too, but is not dominant there.
The other problem was Research in Motion (RIM), although Sehat did not mention them by name, everyone knew which customer he was talking about. It isn't that RIM (maker of Blackberry phones) is itself in trouble, despite competition from Apple and Android-based devices. Marvell makes chips for only a couple of RIM models. For those models there was an inventory issue, not with too much inventory, but with a change that results in Marvell holding inventory for RIM. The main issue is that in many developing nations RIM is moving 2.5G phones, and Marvell does not have a chip for 2.5G. However, Marvell should have such a chip later this year.
So two major sources of revenue Marvell counted on were down in Q4 and will continue to be down in Q1. But the big issue, the lack of an inflection point, has to do with OPhones in China. These phones sold slowly late in 2010. Sehat believes that is mainly a matter of introducing them and prices that were too high on the original models. During 2011 a number of Marvell based OPhones will be introduced in China at far more attractive prices, yet which maintain Marvell's own profit margins.
Hence, still an upward inflection point. I don't blame potential Marvell investors to take a wait and see approach. The problem (with not buying at today's stock price) is that Marvell, even in these "bad" quarters, is generating a lot of cash. The low price/earnings ratio for the stock reflects the "show me" attitude about OPhones. If you wait for the revenue ramp to be in the rear-view mirror, the stock is going to be a lot more expensive.
So watch for OPhone news out of China. Maybe consumers there will want iPhones or other alternatives instead. But if hundreds of millions buy the new Marvell-based OPhones, Sehat and crew are going to look a lot more far-sighted than they do right now.
I own Marvell stock and understand the risk of competing against the talented people at Qualcomm, NVIDIA, Apple, etc. Right now I would not sell my Marvell stock for less than $30 per share. Come this fall, depending on the OPhone ramp, I may need to change my estimate of its value.
See also:
http://www.marvell.com/
My March 2011 Marvell (MRVL) analyst call summary
Wednesday, October 6, 2010
Marvell Rumors: Hard Drives, RIM PlayBook
If you own a hard drive, odds are better than even that it has a Marvell Technology Group chip running it. In fact Marvell is a key supplier of many semiconductor devices that go into cell phones, wireless and hardwired networking equipment, and printers.
When Marvell's stock price began to slump yesterday (it closed Monday at $17.21, closed Tuesday at $16.89, down almost 2%), on a day the rest of the market was booming upward, I figured it was because of concerns about the hard disk drive (HDD) business. Reports from the field are that notebook sales are off, as 2 million consumers a month buy iPad tablets instead of refreshing their older notebooks. Less notebook computers means less hard drives, and PC sales in general have not been robust so far this year.
But no, a rumor was floating around, apparently originating with a noted Wall Street analyst, Ashok Kumar of Rodman & Renshaw, that RIM had dumped MRVL for TI for its processor for the PlayBook tablet computer. The rumor made some sense but had some obvious problems too. All stories I found on the net had the same origin, but many managed to deviate from the original, one even calling the RIM PlayBook the BlackPad (RIM is best known for its BlackBerry devices).
Executives of listed corporations are not supposed to give individual analysts market moving news. They are supposed to give all analysts and investors any market-moving news at the same time, usually by a press release or a public conference call. But analysts do all kinds of things to try to figure out what is going to happen before it is announced. I know I do. When I heard the RIM PlayBook announced, I looked to see who made the processor. No answer, but it was an ARM-based processor. As a Marvell investor I hoped my company would have a win, and many other commentators thought that was a good guess.
But RIM and their partners kept the design a secret, so in fact no one should have assumed Marvell won design-in. There are lots of uber-competent ARM-based processor makers to choose from.
So far there has been no confirmation from Marvell, RIM, or TI of the story. Which means it may not be true. Analysts like to have sources in or near companies. We like to ask questions to one company that will give us insight into the financial future of other companies. TI may very well have a design win at RIM, but it may not have ever been a socket Marvell had already won.
Let's look at the rumor as stated. The PlayBook release has been delayed; that much is known true. That would mean there are development problems. Kumar is alleged to have said the QNX OS for the device had problems, and the Marvell Armada chip for the device had bugs.
Let's see, Marvell chips work fine on BlackBerry phones already, and they work fine on Android phones. So was this a new, as yet untested chip that was buggy? Or was it just hard to integrate with the new QNX OS system? That is a classic engineering problem, with the software guys blaming hardware, and the hardware guys blaming software. If there was a Marvell chip screw up, was it really the chip, or was the incompetence on the RIM team? And why would a TI chip, also based on the same ARM design, work right off with QNX? Is it easier to fix known, discovered bugs, or to start over with a new chip? Usually, it is easier to fix the known bugs. And usually you don't change the processor, because that would require a lot more work than changing the OS to work around the processor's capabilities.
One way a possibly partly true, but obviously flawed, rumor can happen is through the third party. TI guy says to a friend, we got a RIM contract! Friend digs deeper, just a purely tech conversation, and speculation is RIM had some problem with QNX, and Marvell was the team to beat. By the time Friend, who is a regular supplier of tech information, talks to Kumar, the story makes sense, but may not be factually based. Kumar tries to verify the story, but if RIM, TI, or MRVL tells him, they are violating confidentiality contracts and SEC rules, so they don't comment. Kumar goes with his story. If he's right, he's a genius. If he is wrong, the squirrels will forget it soon enough.
At some point an official announcement may be made. Other than that, I'll have to wait until one of my friends gets a PlayBook and pops it open to see what chips are inside.
More data:
Marvell site
My Marvell Technology (MRVL) page
Marvell fiscal Q2 2010 results release
When Marvell's stock price began to slump yesterday (it closed Monday at $17.21, closed Tuesday at $16.89, down almost 2%), on a day the rest of the market was booming upward, I figured it was because of concerns about the hard disk drive (HDD) business. Reports from the field are that notebook sales are off, as 2 million consumers a month buy iPad tablets instead of refreshing their older notebooks. Less notebook computers means less hard drives, and PC sales in general have not been robust so far this year.
But no, a rumor was floating around, apparently originating with a noted Wall Street analyst, Ashok Kumar of Rodman & Renshaw, that RIM had dumped MRVL for TI for its processor for the PlayBook tablet computer. The rumor made some sense but had some obvious problems too. All stories I found on the net had the same origin, but many managed to deviate from the original, one even calling the RIM PlayBook the BlackPad (RIM is best known for its BlackBerry devices).
Executives of listed corporations are not supposed to give individual analysts market moving news. They are supposed to give all analysts and investors any market-moving news at the same time, usually by a press release or a public conference call. But analysts do all kinds of things to try to figure out what is going to happen before it is announced. I know I do. When I heard the RIM PlayBook announced, I looked to see who made the processor. No answer, but it was an ARM-based processor. As a Marvell investor I hoped my company would have a win, and many other commentators thought that was a good guess.
But RIM and their partners kept the design a secret, so in fact no one should have assumed Marvell won design-in. There are lots of uber-competent ARM-based processor makers to choose from.
So far there has been no confirmation from Marvell, RIM, or TI of the story. Which means it may not be true. Analysts like to have sources in or near companies. We like to ask questions to one company that will give us insight into the financial future of other companies. TI may very well have a design win at RIM, but it may not have ever been a socket Marvell had already won.
Let's look at the rumor as stated. The PlayBook release has been delayed; that much is known true. That would mean there are development problems. Kumar is alleged to have said the QNX OS for the device had problems, and the Marvell Armada chip for the device had bugs.
Let's see, Marvell chips work fine on BlackBerry phones already, and they work fine on Android phones. So was this a new, as yet untested chip that was buggy? Or was it just hard to integrate with the new QNX OS system? That is a classic engineering problem, with the software guys blaming hardware, and the hardware guys blaming software. If there was a Marvell chip screw up, was it really the chip, or was the incompetence on the RIM team? And why would a TI chip, also based on the same ARM design, work right off with QNX? Is it easier to fix known, discovered bugs, or to start over with a new chip? Usually, it is easier to fix the known bugs. And usually you don't change the processor, because that would require a lot more work than changing the OS to work around the processor's capabilities.
One way a possibly partly true, but obviously flawed, rumor can happen is through the third party. TI guy says to a friend, we got a RIM contract! Friend digs deeper, just a purely tech conversation, and speculation is RIM had some problem with QNX, and Marvell was the team to beat. By the time Friend, who is a regular supplier of tech information, talks to Kumar, the story makes sense, but may not be factually based. Kumar tries to verify the story, but if RIM, TI, or MRVL tells him, they are violating confidentiality contracts and SEC rules, so they don't comment. Kumar goes with his story. If he's right, he's a genius. If he is wrong, the squirrels will forget it soon enough.
At some point an official announcement may be made. Other than that, I'll have to wait until one of my friends gets a PlayBook and pops it open to see what chips are inside.
More data:
Marvell site
My Marvell Technology (MRVL) page
Marvell fiscal Q2 2010 results release
Subscribe to:
Posts (Atom)
