Is Lack of Market Share Killing Marvell?
Nikhil is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Marvell Technology Group (NASDAQ: MRVL) is down about 16% over the last 12 months, and up about 10% since the beginning of the year. It's really making quite the rebound, but it's not nearly as impressive when you consider the performance of the Semiconductor Industry Index. The SPDR S&P Semiconductor ETF is only down 14.8% last 12 months and is up 18.8% from the beginning of the year. There are a lot of possible reasons for why this would happen, and to ask why would be to get into a lot of speculation and doubt.
So of course, it's time for some speculation as to why Marvell doesn't have the same acceleration. Of course, diversification is a good reason for why the index has lost less than Marvell Technology Group, but that would limit its upside as well, so why hasn't Marvell been lifted from the ground with the index? What's wrong? It may be that Marvell just isn't seen as big enough player in the industry and investors jumping into Semiconductor stocks are putting more of their cash elsewhere. Why might this happen? Market Share, a quality I will analyze further below. It also could be that Marvell's earnings aren't as good as its competitors' bottom line, so Marvell just deserves a lower valuation. There is a broad range of other possibilities, but to avoid all the confusion and baseless speculation, I will focus on just the two: Market Share and Bottom Line Valuation, and try to clear up the ground with some hard evidence.
Marvell's Industry Positioning: Why Investor Cash Isn't Flowing in? Market Share Wise, there are lots of reasons to go elsewhere.
Why would I take the market follower against the market leader? Marvell's lack of acceleration may have a lot to do with its industry positioning. To figure out Marvell's position, we have to look first to market share. We'll define market share as the percent revenue of total semiconductor based revenue for the year. In 2011, the top holder of market share was Intel (NASDAQ: INTC) with market share of 15.9%. Intel had almost 50 Billion from its semiconductor sales, and its market share has only increased (23% increase from 2010). This already shows the difficulty an average semiconductor company like Marvell Technology Group has standing out from its competitors as a stock for investment and as a business for clients, as the biggest player in the industry only has 16% of industry. The industry is really led by these larger international companies, Intel with a market cap of 133B and the third most market share going to Texas Instruments Inc. (NASDAQ: TXN) with a market cap of 38B. Texas Instruments, at third most market share, only has 4.5% of total semiconductor revenue, and Toshiba (TYO:6502) and Qualcomm (NASDAQ: QCOM) have 4.3% and 3.2% of market share respectively, all handily above Marvell Technology Group's meager 1.1% of market share.
Here's a comparison of Marvell to Intel, Texas Instruments, and Qualcomm, in terms of a different metric, Net Income, to give you a sense of why Marvell Technology Group just isn't attracting investor money.
Next to Intel, the growth of any of these companies' net income is negligible, with Marvell Technology barely registering growth at all over the last 10 years. The growth in net income by each company even seems to roughly match their position by market share. Of course, by the logic that company performance as investor cash returns to the market matches their market share, Intel should have performed best, followed by Texas Instruments, Toshiba, Qualcomm, and finally Marvell Technology Group. How have these companies actually performed since January?
In order of Market Share: Intel, Texas Instruments, Toshiba, Qualcomm, Marvell
In order of YTD Performance: Toshiba, Texas Instruments, Qualcomm, Intel, Marvell
The only company whose Market Share corresponded with YTD performance is Marvell Technology Group, confirming what we already know: Marvell has been underperforming. Clearly market share is not driving the prices of Semiconductor companies, strange considering the competitiveness of the industry. That pretty much clears up that bit of speculation, but if not market share, then what IS driving semiconductor returns, and pulling Marvell back from the rest of the industry?
It could be earnings, and more importantly earnings and cash flow based valuations, that are driving these returns, so I will explore the individual valuations of Marvell and its competitors based on both net income and free cash flow in my next post to see if there is an obvious connection.
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