Einhorn Reducing Position in Marvell

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David Einhorn’s Greenlight Capital is the largest holder of Marvell Technologies (NASDAQ: MRVL), owning close to 10% of the outstanding shares. Early in April, Greenlight trimmed its position in Marvell. In three Form 4 SEC filings, the position was trimmed by 1.64 million shares from the 51.8 million in the Dec. 31, 2012 filing. There were no additional filings since but this could be a sign Einhorn plans to begin divesting the position, which would put pressure on the shares for sometime given its size. The shares are up 38% year-to-date, so the sale could mean the shares have approached full value in Greenlight’s view.

Einhorn’s Buy Thesis

In Einhorn’s 4Q12 letter to holders of Greenlight, issued on Jan. 22, he defended the position in Marvell and believes their core thesis was still intact. He noted the shares were Greenlight’s biggest loser in 2012, declining by 48% due to earnings shortfalls in the first part of 2012 and a $1 billion jury verdict later in the year.

The defense of holding onto Marvell was based on two things: one, the amount of the verdict getting reduced; and second, the upside from product transition at Marvell. The letter stated in regards to the reducing the size of the judgment,”There are many grounds, but one of the simplest is that most of the damages were awarded based on foreign sales that are generally not protected by U.S. patents. The jury found that since the product was “designed and tested” in the U.S., damages were payable even though the manufacturing and sales happened abroad.” On the second point of his investment thesis, he stated, “MRVL is on the cusp of a large product transition which, to put it mildly, is not in the valuation.”

Progress for Marvell YTD

There has not been an update on the appeal of lawsuit or news on a reduction to the $1 billion judgment. If there is a change it would present upside for the stock, but court rulings such as this one are very difficult to gauge. There is little downside risk from any negative rulings, so it is not a reason alone to own the shares, and it could result in upside at some future time.

The shares are up in 2013 and the company is making progress on other fronts. Marvell reported fiscal 4Q13 earnings ahead of expectations. FY14 guidance was in line with consensus forecasts. Marvell has the opportunity on several product fronts in 2014 to generate growth. First it is positioned to gain share in hard disk drives (HDD) and solid-state drives (SSD) controllers. Their new connectivity solutions are being adopted and it is moving forward with their dual and quad core unified communications system. Analysts that support owning the shares believe the Street’s forecast in these three areas are too conservative. In addition, Marvell returns cash to shareholders via dividends, current yield of 2.3%, and repurchases. For other examples of companies returning cash to shareholders via dividends and repurchases, click here.

Micron Results Positive for Marvell

Micron Technologies (NASDAQ: MU) is worth watching for holders of Marvell, as they are the main supplier of SSD controllers to Micron. Micron has lost over $1 billion in the last year which is especially large for a company under $10 billion in market cap. However there is positive news; Micron reported quarter ending shipment (February 2013) that noted SSD revenues were up by 40% over the prior quarter. It expects double digit growth in 3Q13.

Challenges for Marvell

Marvell does face challenges to penetrate its new markets and gain share from the current players like LSI Logic (LSI) and Intel (INTC). Also, in cellular communications processors, BlackBerry (BBRY) accounted for a majority of the business. BlackBerry is currently trying to stop its share loss with the introduction of the BlackBerry 10 operating system. It is currently fighting for third place in this market. If Marvell wants to succeed in this area, it needs some key wins from other players in this market.

Conclusion

The sale of Marvell’s stock by Greenlight is likely some profit taking. Over the coming months, Einhorn may continue to reduce shares behind the recent gains in the stock. That said, the growth opportunities still exist for Marvell and for investors that believe it will beat forecasts; the stock may be worth holding.


Mike Thiessen has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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