Marvell Looks Set to Launch after a Solid Quarter
Harsh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Chipmaker Marvell Technology (NASDAQ: MRVL), blew away the Street with a solid first quarter and backed up its superlative performance with a Street-trumping outlook. A number of factors worked in Marvell’s favor in the just-concluded quarter and there are signs that the company will keep up its momentum.
I will now put the company through the wringer and see how good it can get in the long run.
Marvell’s arsenal has got a number of strong weapons. The company makes TD-SCDMA chips which are used in smartphones in China. As more and more people adopted smartphones in the Middle Kingdom, Marvell’s TD business kept growing, clocking a 25% sequential jump. This drove Marvell’s revenue from its mobile and wireless business up by 14% from last year and they now constitute almost one-third of its top line.
In addition, the company saw a major improvement in its storage business which spiked 20% from the preceding quarter, driven by better conditions in the storage industry after the Thailand floods last year. The star of the segment was the 500 gigabyte per platter mobile HDD product, whose demand more than doubled in the quarter and made up of 25% of storage shipments.
This particular product from Marvell is unrivalled at present, giving Marvell a technology lead over its peers and paving the path for further growth. The company expects this lead to translate into a 50% growth rate in shipments of the 500 gigabyte per platter product in the current quarter.
...with a lot of opportunity
Marvell’s products have done well so far. And I have more reasons to believe that they will continue doing so. Marvell’s prospects in TD-SCDMA received a further boost when China’s, and the world’s, largest mobile operator China Mobile (NYSE: CHL) declared its intentions of multiplying TD smartphone shipments more than twice to 30 million units this year. And Marvell would probably put its chips inside 40% of those phones. Thus, strong ties with China Mobile in the burgeoning Chinese mobile market will certainly help Marvell achieve better results.
Marvell’s storage business is back on track after last year’s floods and the company is going on the offensive with this business. As mentioned above, the unrivalled nature of the 500 gigabyte HDD product gives Marvell great leverage to increase revenue. Also, it seems that the company is ramping up its shipments to Seagate Technology (NASDAQ: STX), with which Marvell shares a strategic alliance. The Q&A session on the conference call hinted that Marvell is pushing shipments of enterprise HDDs into Seagate two to three quarters ahead of schedule. This doesn’t come as a surprise since Seagate is itself quite positive about the industry’s prospects and is preparing for opportunities in cloud computing and Windows 8 PCs.
In addition, the company is also strengthening its position in the fast growing SSD industry and commands more than half of the merchant silicon controller market and expects to record more gains moving forward.
The bottom line
There is a bagful of opportunity ahead for Marvell to grow its business further. The company’s leading presence in the Chinese cellular industry along with improvements in the storage industry points towards better days ahead for the chipmaker.
What’s more! Marvell has decided to reward shareholders by starting a quarterly dividend of 6 cents a share and is intent on returning more cash as evidenced by the authorization of an additional $500 million in buybacks. This makes the case for Marvell more compelling in case you are looking to add a semiconductor stock to your portfolio.
TechJunk13 has no positions in the stocks mentioned above. The Motley Fool owns shares of China Mobile. Motley Fool newsletter services recommend China Mobile. 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.If you have questions about this post or the Fool’s blog network, click here for information.