Marvell Technologies (MRVL) jumps on LTE wins in China

New article at Seeking Alpha:

Marvell Technologies Will Ramp Smartphone Chip Profits In 2014

I started writing this article yesterday because of an announcement last week of an LTE smartphone win in China. When I got up this morning to finish the article the stock was up quite a bit, and there were more announcements of 4G LTE wins in China. So I finished the article, and fortunately the turn-around time at Seeking Alpha was quick.

I have held Marvell since around 2006. I paid too much for it in the early years, but also built up a position over time during dips. I have taken notes on every quarter's analyst conference since 2006. You can see my notes at:

Marvell Technology Analyst Conference Call Notes

It is getting harder to find undervalued stocks. I believe that MRVL is currently undervalued, but as always that is contingent on it having a growth trajectory more or less in line with my expectations.

I have enough Marvell stock that if momentum players push the price up too high too quickly (above $20 per  share in the next few months) my portfolio rules would require me to sell a portion of it. I try to keep the market value of each of my stocks to no more than 10% of my entire portfolio.

Marvell 2nd half opportunities

I have a new article at Seeking Alpha:

Marvell Technologies Opaque Second-Half Opportunities [May 30, 2013, Seeking Alpha]

That article was long, and so I did not go into the networking segment outlook, or into some other areas where we should see revenue ramps in late 2013 or in 2014. One bright spot is LED controllers. Another is ARM-based servers. I should also point out that Marvell (MRVL) first talked about the tablet market several years ago, so it is good to finally see a yet-undisclosed OEM going with Marvell for a tablet. Marvell's ability to integrate a variety of components on an SoC may yet get some tablet traction.

Marvell Technology (MRVL) Q1 results & conference notes

Marvell Technology Group (MRVL) reported results on Thursday, May 23 that were at the high end of prior guidance. You can see my notes on the analyst conference at Marvell analyst conference, fiscal Q1 2014.

The most significant point is that new products that have been a couple of years in development should start ramping revenues in the second half. While no specific guidance was given for Q3 or Q4, the guidance for Q2 was revenue between $770 million and $800 million, which would be a significant sequential increase.

I own stock in Marvell.

Marvell (MRVL) Wins Microsoft Surface RT Wi-Fi slot

Marvell Technology Group (MRVL) won a slot in the Microsoft Surface tablet computer. According to Anandtech (Inside Microsoft's Surface RT Tablet, October 16, 2012), the WiFi chip on the tablet is Marvell's. NVIDIA won the main prize with its Tegra 3 ARM-based processing chip. Atmel also had chips in the design.

We don't know how many of the WiFi chips Marvell shipped to Microsoft in the summer quarter (Marvell's fiscal Q3 2013 ending October 27, 2012), but it was not enough to balance the damage in the hard disk drive (HDD) controller chip business. Marvell dominates HDD controller chips, but the problem is that the largest single use of HDDs in in PCs. It was a terrible quarter for PC sales, and little HDD makers Seagate and Western Digital could do about it.

Marvell had guided revenues to $800 to $850 million. The update issued on October 18 put revenues at $765 to $785 million. At the midpoint there is a $25 million miss on the low end of prior guidance. Just about all of that came from the HDD segment. Marvell also makes chips for smartphones, for networking (ranging from WiFi to high-end datacenter Ethernet), for Google TV and similar appliances, and for video processing in HD TVs. It is moving into new areas like LED controllers.

The fourth quarter is a big question mark. A lot depends on the global outlooks of OEMs. If they are pessimistic they may further shrink inventories. If holiday sales go well, they may have to expand inventories, giving chip manufacturers like Marvell a boost.

While there is a lot of uncertainty about Q4 and about 2013, Marvell is well set to manage their way through it and eventually expand into new businesses, as they have in the past. Even at the current level of revenue Marvell is a cash cow. At the current stock price, $7.755 at the close Friday, you are buying $0.75 in trailing 12-month earnings and dividends of $3.1% per year, plus a cash balance of $2.13 billion, or $3.82 per share. In the latest quarter cash flow from operations was $0.34 per share. It looks to me like the market over-reacted to the revenue miss. At this price Marvell stock is well worth the risk, in my opinion. But then I started accumulating Marvell stock years ago.

Marvell is large enough and diverse enough that if only moderate numbers of Microsoft Surface tablets get sold, that probably won't have a significant impact on Marvell revenue or profit. Then again, the Windows Surface is a really hot device, and may sell in more than moderate numbers. It is on my wish list.

Disclaimer: I am long Marvell and Seagate. I will make no position changes in them for a week after this article is published. I do not have a position in Microsoft, Western Digital or NVIDIA and also will not initiate one for a week. Also, I occasionally do freelance work for Microsoft.

Marvell provides ARMADA CPUs to Dell

Dell announced today that it is experimenting with ARM processor based servers and shipping product to partners. The "Copper" servers will be used mainly for evaluation. ARM processors currently are limited to 32-bit paths, but almost all current servers run 64-bit software. ARM is planning to introduce a 64-bit CPU architecture, probably some time in 2013. Dell presumably would start selling commercial quantities of the ARM based servers in 2014.

ARM licenses its architecture to many semiconductor companies. What ARM processor did Dell choose for its preliminary designs? ARMADA XP by Marvell.

This critical detail is near the bottom of the Dell ARM Servers press release. In the more detailed Introducing Copper blog there is a a video of a talk with Christina Tiner, who points out the ARMADA CPUs about a minute and a half into the video.

There is also a Marvell Powers Dell Copper ARM Server release from Marvell.

It is probably no reason to buy or sell Marvell stock. ARMADA is getting a lot of traction, but you can bet other ARM processor makers like Texas Instruments will be gunning for the slot in the commercial run. Dell could even abandon the project if customers decide that ARM really is not all that great at running web workloads when compared to x86 based processors.

Still, it puts Marvell on the inside track to what may the next big wave in computer processing.

Disclaimer: I am invested in Marvell stock.

Marvell Technology (MRVL) Elbows Out

Marvell Technology Group (MRVL) reported results above expectations for the quarter ending April 28 (Q1 fiscal 2013) last Thursday. I was delighted that CEO Sehat Sutardja strayed from his usual dry, careful observations to take on some negative Street views of his company.

Revenue was $795.4 million, up 7% sequentially from $742.7 million, but down 1% from $802.4 million year-earlier. That may not seem stellar, but some rival semiconductor companies and some analysts had been predicting considerably worse. Essentially the rumors were that a competitor was finally besting Marvell in the hard drive controller market and that Marvell was also failing in the Chinese smartphone market.

Marvell stock ended Thursday, before results were released, at $13.3. Today it closed at $12.99, for a market capitalization of $7.4 billion. Clearly the news that Marvell is back on the success track has not yet sunk in, with overall market turmoil probably not helping.

For investors the last few year with Marvell have been tough. After splitting in 2004 and again in 2006, the stock price entered 2007 at well over $20 per share. At the 2008 bottom it hit a low around $4.48. More recently Marvell's 52-week high was $16.86, low was $11.23.

The real long-term value in any technology company is as much in what is going on in its R&D department today as what last-quarter's results were. R&D spend in the latest quarter was a healthy $256 million. Marvell does not give a breakdown of R&D spend, but a lot of it had to go to two crucial areas where Marvell leads competitors: TD smartphones for the Chinese market and next generation storage devices, including both HDD (hard disk) and SDD (flash memory based).

The main good news for Q1 was the continued rapid ramping of sales of Marvell-processor based TD-SCDMA smartphones in China. Marvell's chips not only include the processor, but most of the functions needed to run a smartphone (graphics, cellular modem, wi-fi, bluetooth). The middle-class masses are buying Android based smartphones that run on a this new 3G high-speed, invented-in-China protocol. Revenue from these chips was up 25% from Q4. Usually, for its mobile sector, Marvell sees a seasonal decline from Q4 to Q1, and indeed overall the sector was down 1% sequentially. Even then Marvell's mobile segment revenue was up 14% from year-earlier Q1.

Marvell has not competed very successfully for silicon in smartphones in the U.S. or Europe. It has space in some RIM Blackberry phones. When RIM tanked analysts predicted Marvell would have to abandon the space. Instead Marvell is turning its clear victory in China to its advantage in the global competition for the next generation of smartphones. Qualcomm's control of CDMA patents may be history as LTE becomes the new standard. I don't see Marvell beating out Qualcomm in the U.S. or Europe in the next few years, but its design philosophy is enabling it to turn the flank in China, much of Asia, and Africa.

In the hard drive space Sutardja specifically took on the claims of its chief competitor (LSI) about capturing market share, claims that have been echoed by several Wall Street analysts without fact checking. Marvell's storage sector revenue was up over 20% sequentially, in what is usually a seasonally sequentially down quarter. This sequential growth was only partly due to industry recovery from the Thailand floods.

After the floods Marvell's market share did drop to 56%, according to Sutardja. But that was based on which HDD makers were hurt worst by the flooding, not by the competitiveness of Marvell's controller chip rival. In Q2 quarter Marvell's market share should return to about 60%. The disruption of the industry in 2011 meant people produced whatever capacity drives they could. This quarter will see return to normalcy, which means favoring higher-capacity drives for any units that can be produced. Marvell leads in controller chips for high-capacity drives, including the new 500 GB/platter mobile drive solution, which is expected to ramp revenue another 50% in the current quarter. Sutardja also pledged to gain unit and revenue share going forward based on next-generation designs.

There are a lot of other pieces to the Marvell enterprise, but a good summary would be the guidance issued for fiscal Q2 2013 end July, 2012: 6 to 12% sequential revenue increase, or $840 to $890 million. A bit above the upper end of the range would put Marvell flat y/y.

While revenue has flattened since 2010, profit generation has been very healthy at these levels. As a result Marvell initiated a $0.06 per share per quarter dividend. $500 million was added to the share repurchase program. The cash balance was $2.2 billion.

Marvell would be able to buy back a substantial portion of its shares at its current share price.

The usual risks apply. Marvell faces competition in every market it serves, in particular chips for smartphones. My best guess, however, is that over the long run Marvell will continue to do what it did after its founding: take market share from rivals. It will also continue its expansion into new sectors.

Disclaimer: I am long Marvell. I seldom trade the stock and won't for a week after this article is published.

Opportunities in Data Storage: Seagate, Western Digital, and Marvell

Because I own stock in Marvell Technologies (MRVL), which gets about half of its revenue from sales of HDD controller chips, I read a detailed interview with Steve Luczo, the CEO of Seagate Technology (STX) [See Seagate CEO Interview at Forbes]. Seagate is one of only 2 remaining major hard disk drive (HDD) manufacturers. The other is Western Digital (WDC). While I already agreed with the overall HDD story, Steve made some very good points that I had not thought of or heard before.

In addition to MRVL and STX, I'll be discussing semiconductor manufacturing capital equipment makers Applied Materials (AMAT) and KLA (KLAC) as well as Dot Hill (HILL), EMC, AMD, and Intel (INTC).

Let's tackle the Thailand flooding aftermath before taking on long-term trends. Industry-wide, quarterly unit sales were projected to be 180 million before the floods hit. Instead Q4 2011 production was 120 million units. Q1 production rose to 140 million units, Q2 expectations are 160 million units, and Q3 should be back to 180 million. If there are still shortages, Q4 could see between 180 and 200 million units produced.

In addition, as the year progresses industry average drive capacity will increase as new, high-capacity equipment replaces older machines damaged by the flooding.

For makers of parts that go into the drives, that is good news. It is also good news for PC and server manufacturers (and suppliers like AMD and Intel (INTC)) that have been constrained by HDD shortages. In Marvell's case, they report quarters with a one-month lag and also ship pre-production. That means that Marvell is currently in a quarter that runs February to April. April chips will go in May HDDs, so run rates should be pretty good by then. It is possible that Marvell's July quarter will be back to record HDD controller chip shipments.

Overall expectations are that once we get past Q1, this should be a banner year for almost everyone in the storage industry, with good margins (because shortages will persist) and unit shipments improving markedly in the second half.

But aren't Solid State Drives (SSD's) going to replace HDDs, which are not used in tablet computers, smartphones, or possibly in thin and light notebook models? Should investors continue to flee the entire HDD industry? Why else, except investor flight, would Seagate have a forward P/E of just 4.1?

Luczo does not think so. The anti-HDD argument that has been around investor circles for some time is that as SSDs become mass-market, and technologies shrink, SSD capacities will go up, prices will come down, and HDD demand will decline in short order.

The typical counter argument is that data storage requirements are based on the expanding storage needs of the world. Storage is a volume business, so while SSDs may provide speed, HDDs need to continue to improve both capacity and units shipped just to keep up with expanding volumes of data, particularly video data. For every iPad there has to be disk capacity in the cloud somewhere, because iPads mostly need to connect to data stored on disks in the cloud to be useful.

The stronger argument is this: semiconductor fabs cannot be built fast enough to make the SSD replacing HDD dream come true, not anytime soon, if ever.

A new semiconductor fab (factory) is a very expensive investment at $10 billion. If the chips produced by the fabs (in this case mainly memory chips) are not expensive enough, building a new fab is a money loser. In effect the prices for chips are set by the capital required to build the fabs.

It is much, much cheaper to add data storage production capacity, on a byte basis, by building new HDD factories than by building new semi fabs. The same data capacity expansion could be achieved with less than $1 billion in capital, Thus HDDs will have a considerable price advantage for the reasonably visible future.

Technology investors have learned that when a technology is dying, you might as well exit. Some companies role well from one technology generation to another, as Intel has. But the point here is that the HDD industry is not dying. The SSD industry can grow rapidly for an entire decade and the HDD industry will still be far larger at the end of the decade than it is today, and than the SSD industry will be. Of course many companies will play both sides of the SSD/HDD game, and hybrid drives are already available.

But suppose Luczo is wrong in the sense that chip manufacturers do decide to invest rapidly in fabs to drive as much SSD expansion as quickly as possible. I still think Seagate is undervalued in that scenario, but there would be other winners. The obvious ones are the semiconductor equipment manufacturers whose machines make the silicon wafers and create the tiny transistors that make up Flash memory. There are still a number of companies in this category, but as capital requirements increase this segment is consolidating as well. Two big players that should gain from SSD fab accelerations are Applied Materials (which recently acquired Varian), and KLA-Tencor. Both currently have attractive P/Es that do not reflect any future boom in the SSD industry.

Meanwhile data storage equipment makers from giants like EMC and HP to specialists like Dot Hill should continue to do well, since the systems they manufacture can accommodate both SSDs and HDDs, depending on the needs of the end customers.

Disclaimer: I own MRVL, AMAT, and HILL. I do not own STX, WDS, KLA, INTC, or EMC. I won't trade in any of these stocks for 3 days after this article is published.

Keep diversified!

Marvell Technology Group Hones Edge

Marvell Technology Group (MRVL) was started by a young man, Sehat Sutardja, with a belief that he could make a better chip for controlling disk drives. 16 years later, Marvell dominates the market for hard disk drive controller chips, but now receives about half of its revenue from other market segments.

At the CES this year Marvell showed off some products that again put Marvell on the bleeding edge. I'll come back to those after providing some background for those of you not so familiar with the Marvell story.

For investors the last few year with Marvell have been tough. The stock pays no dividend. After splitting in 2004 and again in 2006, the stock price entered 2007 at well over $20 per share. At the 2008 bottom it hit a low around $4.48. Today it ended sharply up at $15.12 and representing a market capitalization of $8.8 billion.

These stock price gyrations exaggerated Marvell's changes in revenues and net income. Total 2006 (fiscal 2007) revenue was $2.24 billion, with slightly negative net income. Revenues for 2010 (fiscal year 2011, ending January 29) were up to $3.6 billion, with net income hitting $904 million. This fiscal year 2012 revenues are trending towards $3.45 billion, but with just $690 million net income.

A series of problems and even a catastrophe hid Marvell's growing profit potential in 2011. Aside from general global economic turmoil, one major problem was RIM's failure to recapture lost market share with its newer Blackberry smartphone models. This may or may not be temporary. Marvell makes the processors for some Blackberry models. Marvell did not get a slot in the new RIM PlayBook tablet, which sold poorly. It appears that the failures are largely RIM's, and often software related. The Marvell processors, when used, seem to work well.

The catastrophe was flooding in Thailand, which knocked HDD (hard disk drive) factories out of commission, and so the revenue for HDD controller chips will be low for the current quarter. Factories should be mostly back online by February 1 when Marvell's new fiscal year begins.

Meanwhile the main good news has been the rapid ramping of sales of Marvell-processor based smartphones in China. Marvell's chips not only include the processor, but most of the functions needed to run a smartphone (graphics, cellular modem, wi-fi, bluetooth). Thus while brand-happy Chinese are dying (almost literally) to get iPhones, the middle-class masses are buying Android based smartphones that run on a new high-speed, invented-in-China protocol, TD. The ramp in revenue from this in calendar 2012 will be substantial, and the baseline should be noted in the Q4 report due in early March.

Which brings us back to CES (and leaves out Marvell's leading enterprise-grade Wi-Fi and wired internet switch chips). I can only hit highlights, so many products were introduced.

Foremost, Google chose Marvell's ARMADA 1500 HD Media System-on-Chip (SoC) for the next generation of Google TV. While there is no guarantee that Google TV will become a mass market product, it does much to validate the hundreds of millions of dollars Marvell has invested in research and development for ARMADA and related technologies. ARMADA is ARM-based and contains many of the same technologies used with smartphones and tablets. Google has worked closely with NVIDIA, Qualcomm and other ARM-based chip designers; this is a clear sign Marvell is also in the inner circle. The ARMADA chip series has been adopted by OEMs for a wide range of consumer and business appliance applications. See also ARMADA and PXA application processors.

Plug computers are a Marvell invention: inexpensive, small but powerful computers that plug directly into electric sockets and can act as local servers. SMILE plugs are designed to connect a classroom of up to 60 students and complement the One Laptop per Child program and Marvell ARMADA based low cost, low power tablet computers. This is mainly for developing nations, but given funding shortages should be considered by U.S. schools as well.

In storage, much has been said about replacing hard drives with SSDs, and PCs with Flash-based tablets. Change has come slowly. Marvell already leads in SSD controller chips. Now it introduced a chip that attached through PCIe, an existing, faster port than the standard SATA disk port. Everyone agrees this will be popular. Alternately another chip allows for an SSD and hard drive to function together better to lower response times while keeping bulk storage costs low.

Consumer home connectivity and automation were addressed by several products. New models of Avastar wireless chips make it easier for all sorts of devices to connect, including Internet phones and video surveillance. Lighting with LEDs was specifically addressed with new, automation-ready chips. The Smart Energy Platform, a combination of a wireless microcontroller and management software, is aimed at lowering price points for energy-conscious appliances in the home.

Except for Google, OEMs will make their own announcements as branded products become available this year.

I will wait on management's Q4 fiscal 2012 in early March before trying to estimate directionality for the new year. Technology is rapidly evolving. More individual devices mean more information needs to be stored in the cloud, requiring in turn more HDD storage and connectivity. All these trends favor Marvell, but competitors will be gunning for the same revenue and profits.

What do I think would most enhance shareholder value? A dividend. As of last quarter Marvell had 2.4 billion in cash, no debt, and cash flow of $262 million. Marvell has used its cash mainly for stock buy backs, and is likely to continue to do so.

Disclaimer: I am long Marvell. I seldom trade the stock and won't for a week after this article is published.

Keep diversified!

Will Thailand Floods Hit Marvell Technology?

Marvell Technology (MRVL) makes semiconductor chips for hard disk drives (HDDs), cell phones, networking and other devices. Marvell's first product was a chip to control hard drives, and in its first decade it came to dominate that market. This year revenue from chips for hard drives has represented about half of total Marvell revenue.

This week massive flooding in Thailand caused Western Digital manufacturing facilities to be shut down there. Obviously this could hurt demand for Marvell's HDD controller chips, at least temporarily. How much trouble could this be for Marvell's Q3 and Q4 results? (its fiscal Q3 ends October 30th; Q4 ends January 31st)

Western Digital is currently Marvell's largest HDD customer. Earlier this year Western Digital acquired Hitachi's HDD division. Marvell is generally granted to have the best HDD controller chips, so it has been expected to expand its already substantial market share by increasingly supplying chips for Hitachi. It has also been becoming a more important supplier for another big HDD manufacturer, Seagate, which is acquiring Samsung's HDD division. In Q1 2011 Western Digital led global shipment in units, but Seagate led in revenues.

According to Western Digital, two of its Thailand facilities were shut because of flooding. In addition there has been flood damage to the supply chain for the plants. It expects a "significant impact" on its ability to meet demand in the December quarter.

Seagate's Thai factories were not directly affected, but it also expects supply chain problems of unknown magnitude.

While all this is sorted out Marvell will probably lose some October shipments, which may impact Q3 revenue, depending on revenue recognition timing. It is too early to predict how long beyond October the effect could last. In the longer run it is likely just a bump in the road. There is inventory at every stage of the chain. HDD sales have not been robust this year, so the inventory situation is probably not bad. PC manufacturers have inventory on hand, and there have been no reports that the flooding ruined any drives already made or in production. To some extent supplies and production could be shifted to other plants, which should have excess capacity, if not now (gearing up for holiday PC sales), certainly in December and January.

The situation is worth watching. If it takes months instead of weeks to get back to full production there could be a substantial impact on Marvell's Q4 results. On the other hand Marvell has been trending to be less reliant on HDD chip sales for its profits. Revenues from its Chinese smartphone chips, which should be ramping in Q3, are probably the best indicator of how well Marvell will fare in 2012.

Disclosure: I am long Marvell Technology (MRVL).

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!

Marvell Ramping TD Smartphone Revenue

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!

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

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

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

Marvell Technology (MRVL) Mobile Invasion

Marvell Technology Group had a mixed fiscal second quarter (Q2) 2011 ending July 31, 2010. Revenue fell below prior guidance. On the other hand it was was $896.5 million, up 5% sequentially from $856 million and up 40% from $640.6 million in the year-earlier quarter.

Wall Street was not suprised at the short fall because the PC supply chain was believed to have hit the pause button in July. Marvell's biggest product segment is semiconductor chips that go into hard drives (HDDs) for data storage. HDD revenue was 15% down sequentially from Q1. There had been supply constraints over the last year, and as a result HDD manufacturers had overbuilt inventory preparing for back to school sales. This was largely from the Europe economic effect, not so much an actual downturn in demand in Europe as cautious inventory control by spooked CEOs. Marvell management believes consumption of excess inventory is mainly behind, as orders rose again towards the end of July.

Making Q2 not such a bad quarter was the long-promised ramping of Marvell products for the mobile/wireless markets. This segment saw an over 50% sequential jump (and up 140% y/y) as silicon was shipped for a number of new products that consumers (mostly in Asia) will see in Q3. About 15% of sequential growth was due to to an Armada based product, with a single customer getting ready for a game product introduction. 30% of sequential growth was due to a cell phone processor for a customer ramping a new product. 55% of sequential growth was for embedded Wi-Fi, which is a market the Marvell has been successful in for some time, and is still building on that success. Management believes it will see 15% to 20% sequential growth in Q3 in the mobile and wireless segment.

Earlier this decade Marvell made very large commitments to R&D and also made some acquisitions that analysts questioned at the time [See Marvell's Huge Research and Development Budget August 24, 2007]. Now we are seeing fear in the hearts of competitors in a slew of fields that Marvell did not even play in five or ten years ago.

Take one known example from the mobile device market. Hawang has been producing eReaders for the Chinese market since 2008. The Marvell based model is due out by September. According to Hawang it offers "better performance at a better price ... true mass market pricing." This is possible because of Marvell's intellectual property and ability to put many functions on a single chip. Notably this single chip solution (SoC - System on a Chip) includes an integrated e-Paper Display (EPD) controller. It can display standard pdf documents and requires very little power. I also expect we will see OEM announcements of tablet computers that are based on Marvell chips as we progress through the year. These may be in Asian markets, but some should be available in the U.S. Keep in mind that this is a very competitive market. In addition to Apple's internally developed A4 chips (which almost certainly won't be sold to competing OEMs), top competitors include Broadcom, Qualcomm (Snapdragon chips), Intel, TI, and Freescale.

With its low-power application processors, cell phone modems, wi-fi and bluetooth technologies, all possibly on a single chip, Marvell has apparently won a leading position in China's new Ophone (smartphones for new cellular signal standard) production, which should begin ramping around the beginning of 2011. That, in itself, will be a huge business.

Another space that Marvell is already competive in and may dominate sooner than you think is Ethernet switching. This has become increasingly important with the proliferation of datacenters and cloud computing.

Most intriguing is the idea that Marvell is going to use products intially developed partly using the Intel division it acquired to go after the server market. Marvell is not the only company that can see using ARM architecture to design servers that sip power, but it does bring a formidable amount of talent to the table. Let's see: really fast, very low power consumption processors, networking chips, and storage chips. Sounds like the makings of a cloud datacenter to me.

Probably my favorite thing about Marvell managment is that they think long term. They have proven they can take a concept, get out a product a few years later, and dominate a market a few years to a decade after that. You might want to take notice of Marvell now, because by 2012 everyone will be noticing.

Resources:

Marvell fiscal Q2 2011 analyst call summary

My Marvell analysis page

Marvell and Hawang E-Reader [Marvell release June 1, 2010]

Marvell Moby Technology site

Marvell Tablet Computers on Way

As a brand, Marvell Technology Group is little known to the general public. Yet if you own a hard drive, odds are better than even that it has a Marvell chip in its interface. In fact Marvell is a key supplier of many semiconductor devices that go into cell phones, wireless and hardwired networking equipment, and printers.

Marvell executives have been talking about tablet computers built around their chips for a while. Yet while they are willing to talk about the superiority of their technology solutions, they often don't say who their OEM partners are, much less pre-announce the end products. Now, however, we are beginning to see the veil of secrecy lift. Most notably we have an announcement of a new eReader by Hawang and the adoption of the Marvell platform for One Laptop Per Child.

Within a few years China will be the biggest national market for both smartphones and tablet computers. Future smartphones in China means OPhones, and Marvell is dominating in design wins for OPhones. For tablets Marvell's design platform is called Moby. For One Laptop Per Child the result would cost in the range of $100. Commercial products will have many variable in their end price, notably the size of the screen and whether it is grayscale like a Kindle or color like an iPad.

In between smartphones and tablets in size are book readers. Hawang has been producing eReaders for the Chinese market since 2008. The Marvell based model is due out by September. According to Hawang it offers "better performance at a better price ... true mass market pricing." This is possible because of Marvell's intellectual property and ability to put many functions on a single chip. Notably this single chip solution (SoC - System on a Chip) includes an integrated e-Paper Display (EPD) controller. It can display standard pdf documents and requires very little power.

Marvell's chips can include application processing, digital signal processing, video processing, and wireless technologies like cell phone modems, Wi-Fi, and Bluetooth. Everything needed for tablet computing.

The iPad tablet computer is a nifty device. We know Apple is famous for its high markups, so there is already room for iPad price drops. But the average American employee cannot afford an iPad (it represents a week's take home pay), much less the average Chinese or developing nation employee. Give them the functional equivalent at $100 to $200, however, and my guess is they will snap up tablets. With the kinds of volumes we are looking at in the China market alone, their should still be reasonable profit margins for Marvell and its OEM partners.

I expect we will see OEM announcements of tablets that are based on Marvell chips as we progress through the year.

Keep in mind that this is a very competitive market. In addition to Apple's internally developed chips (which almost certainly won't be sold to OEMs), top competitors include Broadcom, Qualcomm (Snapdragon chips), Intel, TI, and Freescale.

Resources:

One Laptop Per Child's Next Move [New York Times, May 27. 2010]

Marvell and Hawang E-Reader [Marvell release June 1, 2010]

One Laptop Per Child and Marvell Join Forces [Marvell release May 27, 2010]

Marvell Moby Technology site

Marvell fiscal Q2 2010 results release

Marvell Profits from R&D

In most of the computer and electronics industry the 3rd and 4th quarters are hot. Then Q1, and Q2 are seasonally down. Not that much is selling; inventory is being built for back-to-school, then for the consumer holiday spree and and-of-year corporate buying. This year so far is trending a bit different for many electronic parts suppliers because of the rapid recovery from the 2009 business panic. Judging from its quarter ending May 1, 2010 (its first fiscal quarter of 2011), Marvell Technology Group (MRVL) is benefitting from more than just industry trends.

Marvell first came to dominate the hard drive semiconductor chip industry, and those chips still account for over half of Marvell's revenue. Marvell engineers lead in combining analog and digital chip functions, so we are seeing market penetration in areas where this is an advantage. So far this has been in wired and wireless networking chips and in cell phones, particularly in smartphones. Marvell makes chips for Wi-Fi and Bluetooth, for the wireless signal that connects to cell towers, and for application processors that give the phones their ability to act like computers. While its entry into this market is relatively recent, it is already a major player.

In Q1 Revenue was $856 million, up 2% sequentially from $842.5 million and up 64% from $521 million in the year-earlier quarter. The mobile and wireless end market accounted for about 22% of revenue, so about $188 million. The segment grew 18% sequentially, and that despite Wi-Fi chips "only" growing 6% sequentially.

What is most likely to happen in the next few quarters is that wired networking and storage chips will do their usual annual ramp based on demand, plus any market share gain. Smartphone revenue will continue its explosive growth as a larger number of phones using Marvell's chips are brought to market. And the ramp will include chips for oPhones in China, which by 2011 should, by themselves, be a major source of revenue for Marvell.

In a normal market, Marvell would have a high PE ratio because of its track record and future prospects. But this is no normal market. It is a fear-driven, better a 0% treasury than a 8% stock market. It's pretty weird. Who knows, maybe the world will end and we will sink into an economic depression. But I have news for you. In that case, U.S. treasuries will be as worthless as stocks, because there will be no way the government can raise enough in taxes to cover interest payments.

I own Marvell stock to my portfolio rules limit. I could be wrong, maybe a competitor or two will best Marvell in some segment of the market, but I believe the most probable outlook is that in a few years everyone will wish they had bought Marvell in 2009 or the spring of 2010.

That's my opinion. You can also get the facts, as management presents them, by reading my Marvell MRVL analyst conference summaries.

And of course see also www.marvell.com

Red Hat (RHT) Virtualization Signal

Red Hat (RHT) continues to be not only a fascinating technology company, but a fascinating experiment in investor psychology. It has always been a good company for its customers, who benefit from its enterprise quality, low cost operating system, virtualization, and middleware. Yet the stock began highly overvalued during the first internet stock boom, became vastly undervalued in the crash that followed, and only in 2009 became somewhat overvalued again.

Yesterday's release of results for the quarter ending February 28, 2010, were quite good compared to realistic expectations, but investor's expectations were not reasonable. With Red Hat stock trading today with a Non-GAAP PE (price/earnings) trailing ratio of 41.4 and 40 times future earnings (per NASDAQ.com), meeting investor expectations was an unlikely scenario. You need faster sequential and annual growth rates to justify that kind of PE in this market.

On a GAAP basis, revenue was $195.9 million, up 1% sequentially from $194.3 million and up 18% from $166.2 million in the year-earlier quarter. Net income was $23.4 million, up 43% sequentially from $16.4 million and up 46% from $16.0 million year-earlier. EPS (diluted earnings per share were) were $0.12, up 50% sequentially from $0.08 and also up 50% from $0.08 year-earlier.

If the stock were at a reasonable price, those would be good numbers. But emotional investors who do not understand the technology market perpetually convince themselves that Red Hat is the next Microsoft. There is a big difference between being a great company in a niche and being the next Microsoft.

For the details you need to make your own analysis of the value of Red Hat stock, see my Red Hat Q4 2010 analyst conference summary and past summaries.

I have owned Red Hat stock at times; I currently do not own any. If sentiment shifts again and Red Hat becomes undervalued again, I might become a buyer. This in-and-out goes against my main line of investment thinking, buying undervalued stocks and holding them for the long term. But most of the stocks I invest in are not as volatile as Red Hat has been.

Compare Red Hat to Marvell Technology (MRVL). Marvell revenues in the quarter ending January 30, 2010 were up 65% y/y and 5% sequentially. Even taking into account the different business models (Red Hat income is subscription based, so steadier), it is reasonable to expect Marvell revenues and profits to grow faster than Red Hat in 2010 and 2011. Yet Marvell is trading at only 21.4 times past earnings and 13.9 times future earnings. Note that I own Marvell stock. But look at the PEs of other Nasdaq 100 technology stocks and you will see what I mean. Even Apple, which I frequently diss as overpriced, has a trailing PE of just 28 today; certainly no bargain, but not unreasonable.

There are a lot of technology stocks that offer better value than Red Hat right now. That is not because they are necessarily better companies (though some might be); it is just because of their relative stock prices.


More data:


http://www.redhat.com/

http://www.marvell.com/

Marvell Sees Inflection Point

Marvell Technology Group, Ltd. (MRVL) is led by Sehat Sutardja, who built the company on his invention of a better chip to enable hard disk drives. Marvell has been the leading (by market share) supplier of hard drive controller chips for years, and this segment still represented 50% of revenue for the latest quarter. Marvell has also branched out to a variety of newer areas, based on its ability to combine analog functions and digital functions on a single chip (called SoC, for System on Chip).

Marvell was hit hard by the recession: in fiscal Q4 2009, ending January 30, 2009, it had $512 million in revenues, down from a peak of $843 million in the quarter ending August 2, 2008.

Last week Marvell reported for fiscal Q4 2010, ending January 30, 2010, revenues of $842 million. GAAP net income was an amazing $205 million; cash flow from operations was $281 million.

But the future, while speculative, could be even more amazing. Sehat referred to a coming inflection point. An inflection point on a curve can be from going down to up or vice versa, but in this case he is talking about a dramatic increase is Marvell's revenue growth rate.

As I have pointed out in the past, Marvell spent a lot of money on research and development in the earlier part of this decade, and only cut back a little during the recession. This year new products that were sampled in 2009 are ramping into volume production, and new products sampling this year are going to ramp in 2011. What are those new products?

Most notable are "communication processors" for smart phones, particularly the oPhone beginning to be sold in China. In order to get a price point low enough for mass marketing in China, more features than ever before had to be integrated into a single semiconductor chip. Marvell is unique in being able to offer general application and signal processing, Wi-Fi, Bluetooth, graphics, and cellular modem. Over 90% of oPhone models (there are several companies building them) use Marvell chips.

This alone could be sufficient to cause the inflection point. While the oPhones are far less expensive than models sold in the U.S., Marvell gets very good profit margins on the chips it makes for them. Start multiplying these per-chip margins by the 100s of millions of likely oPhone buyers in China, and you can see the potential.

But there is more. Marvell has become an increasingly prominent player in high-speed Internet switching chips. The competition there is intense, but intense competition has not impeded Marvell for very long in other fields it has chosen to enter.

Many of the newer products will be based on a microprocessor line called Armada. The thing about Marvell is that unlike Intel, they usually don't just make a microprocessor and sell it to customers who put it in a socket. Marvell works with manufacturers to integrate exactly what they need for their products on a single chip that incorporates the microprocessor. This gives faster execution and communication times and reduces costs, while leaving Marvell an ample profit margin.

Expect new products to be announced based on Marvell technology all though 2010 and 2011 (and likely well beyond).

While competition is intense and there are many pitfalls, it looks to me like Marvell is going to become the very center of the semiconductor chip industry during this decade. Of course others have already entered the SoC business, and stand-alone chips will continue to be manufactured for equipment with volumes insufficient to justify an SoC design. I'm not saying the engineers at Intel, AMD, NVIDIA, Broadcom, Microchip, etc. are not very good, and all these companies have plenty of financial ability to compete however they like. But Marvell seems to have found how to

I have owned Marvell stock since January 2005.

For detailed results from Marvell's latest reported quarter, see my

Marvell Technology (MRVL) Q4 2010 analyst conference summary

See also www.marvel.com

Marvell Technology (MRVL) Blows Past Competitors

Even non-engineers can appreciate the engineering of Marvell Technology Group (MRVL). After making a number of technological break-throughs in 2008 and earlier in 2009, revenues are ramping very quickly as products containing their semiconductor chip systems are being built.

For an overview of Marvell technology, see Marvell Under the Hood. For my past analyst conference summaries, see Marvell Analyst Conference Summaries.

Revenue for the quarter ending October 31, 2009 was $803.1 million, up 25% sequentially from $640.6 million and up 2% from $791.0 million year-earlier.

Net income of was $201.6 million, up 245% sequentially from $58.5 million and up 183% from $70.9 million.

EPS (earnings per share) were $0.31, up 244% sequentially from $0.09 and up 181% from $0.11 year-earlier.

Cash and equivalents ended at $1.46 billion. Cash flow from operations wa $203.5 million. $196 million free cash flow. Inventories rose to $239 million to deal with areas of tight supply. Long term liabilities are $174.3 million.

Non-GAAP, which excludes $34.4 million in stock-based compensation, $26.5 million amortization, $1.9 million restructuring, but adds back in the $32.6 million tax benefit: net income $231.8 million. EPS $0.35.

Guidance for fourth fiscal quarter 2010 was $802 to $850 million in revenues. Networking and storage sequential growth, with normal seasonal slowdown of wireless. 58.5% non-GAAP gross margin. $235 million non-GAAP operating expenses. $254 million operating profit. Other income $1.5 million. Tax $12 million. 670 million diluted shares. $0.33 to $0.39 non-GAAP EPS. $150 million free-cash flow. GAAP EPS about $0.09 less than non-GAAP.

Analyst Questions and Answers (summary):

Hard drive market dynamics? First quarter 2010 should continue to be helped by low cost of PCs. Our hard drive customers are optimistic.

Gross margin improvement and mix? We don't provide gross margin by end-market segments. Mobile and wireless end markets experienced very good growth, and your margin estimates for that segment may be off.

China Mobile processor market size? PXA920 is very specific, high volume, high performance for standards of China market. It is state-of-the art smart phone solution, but also cost effective enough for the mass market. Our aspiration is higher than any number anyone is throwing out yet.

Sustainability of gross margins? Semiconductor business gross margins should be on high end as prices go down, to offset other expenses. This is a fundamental shift. The numbers we have are fair numbers and we plan to maintain them as long as we can, and best-in-class semiconductor companies will need to achieve this range.

Are your customers in hard drives adding to inventories? We are on a consignment basis, so they do not need to build inventories of our chips. Full feature PCs, even laptops, are now under $500, which is building demand, especially in emerging economies.

Dividends? We do not believe we are out of the economic downturn, so it is too soon to talk about distribution of cash. Our bias is to have more cash than we need in order to not be at the mercy of banks.

China business going forward? We are optimistic about our work for China Mobile; we have been working with them for 2 years. PDS/CDMA 3G is the pride of China. We believe it will be the main technology in China going forward, so we expect a very strong second half of next year.

Visibility is much improved. Inventory is leaner. We have had some shortages and longer lead times, so customers are giving us more visibility.

O-phone success detail? PXA920 will be used by many OEM cell phone makers for the China market; not all of them will be O-phones. The main chip is the most highly developed ever, but we also have the chip set solutions (power, wi-fi, etc.) that go with this. Revenues will start to ramp in the second half of next year; not contributing yet.

Bluetooth Wi-Fi combo part growth? We are very happy with traction with this device is finally taking off. The ramp now is the first generation device, a second generation is in design now. Any device requiring Bluetooth and WiFi is a potential market.

Reviewed how integration of systems on a chip help everyone, including the OEMs and end customers, while lowering everyone's costs despite increasing Marvell's gross margin.

ARMADA initial end markets? Across the board. Chips range from low end to high end. The run on all the ARM software in the market. So the market is any consumer device from HDTV decoders to picture frames to Internet portals like netbooks to automotive display consoles.

Marvell Downgrade, Round Two (or, Analyst Bull)

This column is not called Dissecting the Bull for no reason.

In this entry I am going to dissect games sell-side analysts play, using today's downgrade of Marvell Technology (MRVL) by Jefferies as an example. The stock price plunged 7% so far today. Marvell is about to hold its analyst conference for the quarter ending August 2, 2008 this Thursday, August 28th.

This looks suspiciously like events the week before the last Marvell analyst conference. See my Marvell Reality Tops Goldman Downgrade to make a comparision, and my summary of the fiscal Q2 2009 Marvell Technology analyst conference for real information.

This does not mean that I know that Jefferies is wrong in this particular case. Rather I want to put this and all analyst upgrades and downgrades into a broad perspective.

First, for those who don't know me, a reminder of my credentials and possible biases. I work freelance as a buy-side analyst for an investment management company. I also do a variety of things for technology companies, let's just call it consulting. I also am developing a web-based business that will be beta-testing soon. This year my only paying tech client has been Microsoft, but that is just a coincidence. I was asked to do a job for Cisco, but refused it due to a scheduling conflict. I also have investments in the stock market, including Marvell. That's why I noticed the price drop today.

Buy-side analysts are under pressure to give an accurate picture of reality for their clients, who are investors. Publicized upgrades and downgrades come from sell-side analysts. Their job should be to give their ultimate clients, individual and institutional investors who follow their advice, an accurate picture of reality. Sell-side analysts are paid by their employers, who are investment banks and brokerage houses. Their employers make money two ways: from their own speculation, and from fees, including trading fees. Generating fees requires getting clients to trade. Upgrades and downgrades induce clients to trade and generate fees. In addition, the tempatation to use the upgrade/downgrade for an internal trading edge, or to give priviledged clients an edge, is always present.

That said, the vast majority of buy-side analysts do their jobs in as honest of a fashion as they are able. Some are better at analysis than others, but that is just human nature. I've been very impressed by some of the sell-side analysts I know through participating in analyst conferences.

Now take a look at varying types of downgrades (flip them for upgrade equivalents). The most common kind is news-based. Usually a company says it had lower than expected revenues, or had some kind of foul-up, and says it to the public. Analysts issue downgrades. You don't need the analysts for that, so you can trust them.

Sometimes, using actual research, a particular analyst will come up with something no other analyst has, at least at first. The woman who picked Enron apart is a good example. Unfortunately, chance playing the role it does, sometimes even this does not help investors much. These downgrades are often difficult to verify independently, until it is too late. Sometimes a plus on the other side of the balance books, perhaps a client making an unusually large order, makes the analysis less important than it would be if all other things were equal.

Finally, we have the Hail Mary downgrade, which could be a cover for just getting clients to sell some stocks to generate commissions. In a time of economic turmoil, these are a good bet for analysts, because something could have already gone wrong, or could go wrong in the near future, so if you are right you look like a genius. There is always some sort of cover story, that makes it look like it is based on actual research. Often these downgrades just look past the truly predictable event horizon and lower earnings estimates for a year from now by a few pennies.

The problem for investors, of course, is that it is difficult to sort out the types of downgrades. Failure to believe a downgrade, when it has a real basis, can be quite dangerous.

At the Marvell analyst conference this Thursday (I'll have a summary [Marvell August 28, 2008 analyst conference] posted soon after it is over) questions will be asked, and Marvell management will give its answers. Could Marvell be hurt by the economic downshift? Sure, it has many large clients. A downturn in a client's business would effect Marvell. But I would not bet against Marvell at this point. I would not want to be any company competing against Marvell head-to-head. Marvell is ultracompetive and has crushed its competition repeatedly. It is in the process of entering several new fields, and seems to be preparing to repeat its history of success. Most notably in the past 2 years it acquired a money-losing division of Intel and turned it into a money maker.

Short term players have no choice but to panic when an upgrade or downgrade goes against their short term bets. Long term players can stick with their basic analysis and change it when real news warrants that.

Keep diversified!

More data:

My Marvell page
www.marvell.com