MRVL - Marvell Technology

[bathtime]

MRVL has a $5.1B market cap,$2.1B in cash, no debt. Backing out the cash that's a P/E under 5.

 

Company is rapidly buying back shares and initated a div around 2.5% .

 

Einhorn increased his stake last quarter.

 

Anyone follow this one?

[Guest rimm_never_sleeps]

it probably doesn't have a p/e of 5. I guess if you look backwards it does. market looks forwards. having said that it does look too cheap for what it is.

[bathtime]

Thanks, you're right and I was slightly off on the no debt - cash nets to $2.0B or $3.37 a share (current share price $9.20). Earnings for FY 2012 were $1.27, analyst estimates for 2013E average $0.96 and 2014E $1.12.

 

Credit Suisse comments from 8/17 when the stock was at $12.28:

 

----

Lower Estimates, Lower TP – Valuation Remains Attractive. We lower our FY13 rev est. to $3.26bn from $3.50bn and lower EPS to $0.94 from $1.13 on lower revs/GM partially offset by lower share count - Street is at $3.48bn/$1.12. For FY14, we lower our rev est. to $3.63bn from $3.87bn and lower EPS to $1.25 from of $1.43 – Street is at $3.78bn/$1.33. Shares trade at 9.8x CY13 (FY14) EPS (6.9x ex-Cash) a 16% discount to the 5yr median of 11.7x (range 5x-53x). FY14 FCF yield of 11% compares favorably to peers at 7.6% and net cash is currently 28% of mkt cap. We lower our PT to $18 (from $22), which represents 14.4x FY14 EPS (11.5x ex-Cash) roughly in line with peers at 14.6x.

 

Cash. MRVL ended the JulQ with $2.1bn in cash and $155m in long-term liabilities, netting to $2.0bn in net cash or $3.37/share, flat q/q on lower share count from buybacks in the qtr. During the quarter, MRVL generated $189.2m in Cash Flow from Operations, spent $250m to repurchase 20m shares, and spent $11m on CapEx in the quarter.

---

 

S&P on 9/14:

---

We see operating EPS of $0.76 in FY 13 and $0.92 in FY 14. Our estimates include stock compensation expense of about $0.22 per share. Our FY 13 and FY 14 cash EPS estimates are $0.89 and $1.12, respectively.

---

 

Einhorn's comments from the Greenlight letter 7/27:

 

---

Marvell Technology Group (MRVL) was the other significant loser, as its shares fell from $15.73 to $11.28 during the quarter. MRVL gave tepid guidance and Wall Street has modestly reduced its estimates of earnings per share from $1.25 to $1.15 this year and from $1.45 to $1.40 for next year. MRVL has about $4 per share in cash and now trades at roughly 5x next year’s earnings net of the cash on the balance sheet. Most of the cash is excess, and the company has commenced what we hope will be an aggressive share repurchase program. We have used the reduced stock price as an opportunity to increase our stake in the company.

---

 

Seeking Alpha article:

 

http://seekingalpha.com/article/755841-david-einhorn-is-bullish-about-this-stock

 

---

Einhorn has increased his stake by about 60% in four months, and now owns over 5% of the $6.4 billion market cap company's shares outstanding.

 

Now that Einhorn has increased his stake, he has passed Maverick Capital, managed by Lee Ainslie, as the top hedge fund holder of Marvell. Ainslie had a position of 20 million shares of the stock at the end of March, just ahead of Greenlight, after adding to its previous holdings in the fourth quarter of 2011. Dan Loeb's Third Point initiated a position of 10 million shares and D.E. Shaw increased the number of shares in its portfolio by 50% to 83 million. It therefore seems that the stock is quite popular among top investors, not just with Einhorn. Considering the track record these managers have, an investor should look further at the stock.

---

[cpan]

Here is my analysis on MRVL which I am long on.  I would love to hear from people on the board to see if I am off base or not.    I think MRVL has 2 type of business:

 

-  It has a duopoly with LSI in the storage controller space where it controls 55-60% of the read channel and controllers in harddisks with LSI

-  Its is in the SDD/wireless/network chips business where it has lots of competitor and no visible barrier to entry.

 

I think the storage business is now a steady business given the industry consolidation. (I don't think SDD will displace HDD so easily because it only better in speed right now.  The cost is coming down but so is HDD.  In term of capacity I think both HDD and SDD can grow at moore's law).  Therefore I think I can use DCF with some growth and profit assumption.  Seagate has grown its HDD unit shipment by 8.3% CAGR from 2007 to 2012 and WDC has grown its shipment from 2007 is better than that.  WDC analyst day has a slide showing that global shipment is predicted to grow at 3%.  MRVL has seen wild fluctuation of net profit margin in the last four years but averages to 15%.    With the consolidation in the HDD industry, I think MRVL's profit margin should be safe at 15%.  Assuming the MRVL disk segment profit grows at the same rate as the estimated unit shipment rate of 3% and profit margin of 15%,  this value the business at ~1.5B using a discount rate of 10% for 10 years.    With a growth of 7%, the value would be ~1.75B. 

 

Its harder to value the SDD controller business and the wireless and network segment.  The SDD controller space has many player and a lot of them are backed by the flash chip makers themself.  However, LSI bought Sandforce for $370M.  Link-A-media was aquired by Hynix for 248M.  MRVL should be at least as good as these 2 other competitors being acquired and more like Sandforce.  So I give a rough value of $300M

 

In the wireless business, MRVL did well with the wireless processor chips in china but it looks like there is almost no barrier to entry since the Mediatek caught up a couple of years later.  However,  Intel aquired Infineon at 1.4B when Infineon had about the same revenue as MRVL ($900M).  I don't think infineon business is better than MRVL.  Nividia bought Icera for 367B just for the modems that MRVL designs.  So I think the value is somewhere between these 400M and 1.4B and probaby closer to 1.4B.  So I give a value of $1B.

 

So if you sum up the 3, you get roughly where the market is valuing it today (3B enterprise + 2B cash).  However there are intangibles that makes MRVL a pretty good bet.  The founder of MRVL is running the show and have been very good at finding good opportunities (witness the china mobile chip business).    MRVL has a wildcard in its ARM processor business that looks to be as good as anybody.    The company has no obvious issue with shareholder friendliness given the largest shareholder is the founder.  They have not squandered lots of cash with bad acquisitions.

 

So I think its a safe bet for MRVL at the current price. 

 

BTW, this is my first post in the forum and I really enjoyed learning from everyone here so hopefully I can give something back as well.

 

 

[ItsAValueTrap]

Are you guys worried about Intel?  (I am long Intel.)  Intel has a moat in the semiconductor business because its scale allows it to build cutting-edge fabs.  Its chips will have lower power consumption and/or better performance than everybody else.  If you look at Intel versus AMD... it's not a fair fight.  So Intel taking on all the smartphone SoC manufacturers is going to be scary.  If you look at reviews of Intel's smartphone chip in the Xolo (and there's another phone), performance and power consumption are middle of the pack right now. 

 

http://semiaccurate.com/2012/04/26/how-well-does-intels-new-phone-work-as-a-phone/

 

Eventually the software ecosystem will move away from having to do ARM emulation (emulation is slow)... this will increase the performance of Intel chips on Android phones.  And Intel will start moving its smartphone chips onto fabs that are a step ahead of the competition.  This will not be a fair fight.

 

*Historically...

Intel took huge market share away from the RISC instruction set chip manufacturers.  PowerPC, Cray, SGI, etc.

Intel didn't kill off Xilinx and Altera.  Their software design tools are critical and difficult to build.

Intel didn't kill Nvidia and ATI.  Graphics chips are hard to do.  Intel is doing ok with its integrated graphics on lower-end processors.

Intel has always enjoyed a huge advantage over AMD.

[beerbaron]

I am long MRVL since last friday. MRVL is in the top 20% of the IC design house in terms of gross margins. Just take a quick look at valuation of the others, none of them trade at a PE of 5 to 8 after you substract cash.

 

Also, I'm not that much worried about INTC, there is plenty of space in the phone market, INTC will most likely take part of the high end of the business, but I don't see the CPU consolidate like the PC industry.

 

I'm very excited that they are a fabless manufacturer, they can focus on what they are good. Designing ICs, not producing them.

 

BeerBaron

[cpan]

Intel is a issue for Marvel in the wireless space but I don't think Intel is aiming at the storage controller segment.  For the wireless space, its more than just fabs and low power consumption.  If you listen to the Marvell conference call, you can see that the non-mainstream (Samsung, apple) phone makers want a turnkey solution which means you would need to have all the drivers and software stack ready for android.  It looked like Marvell didn't do as good of a job on this and got eclipsed by Mediatek.  Therefore I am not sure Intel has a great advantage in this aspect.  In addition these processors are already dirt cheap.  I think the processor in iphone is around $10, so benefit of Intel's superior manufacturing capability will not be so great.    As fare as I can tell, only Qualcomm is protected via patents and the rest are just fighting it out by iterating their chips by adding features as fast as possible.  I hope the Marvell guys knows what they are doing but they did make a boat load of money going into china when no one expected them to. 

 

I also like the MRVL gross margins eventhough it has fallen to 52-53% (which is still higher than most IC design houses).  And its has low capital cost as long as their R&D can generate useful patents and value.  I think the some of the IC mfr are weirdly  priced.  For example I have no idea why LSI is trading at such a high multiple for essentially the same business as MRVL but with a worser capital structure. 

 

[infinitee00]

I recently went long MRVL for some of the reasons cpan outlined. IMHO the issue about SSD's is overblown. Marvell's SSD business is growing at a pretty decent rate. Here are some of the quotes from the recent conference call

 

Not surprisingly, all of the 7-millimeter drives in the market today use our SoCs. Furthermore, the industry is pushing for even thinner drives with 5-millimeter form factor that are suitable for devices such as tablets. Our long-standing investment in SSDs will be a key factor that will enable these 5-millimeter form factor HDD technology in hybrid formats.

 

Third, our SSD business continues to do very well with Q2 revenue growth of about 25% sequentially, primarily from new customer ramps. Our SSD design wins momentum remains strong, and we expect multiple devices including Ultrabooks and hybrid devices to come to market this year with our SSD controller technology. In Q3, we expect our SSD business to grow over 25%.

 

Finally, we expect our storage end market to increase low single digits sequentially with double-digit growth for our 500 gigabytes for HDD mobile platforms and SSD controllers.

 

I think our -- in the emerging market, SSD controller, I do believe our market share is either equal or higher than the -- probably higher. If I have to guess, probably higher, but I would say, at least equal to our market share in the HDD business

 

Of course, the projections may not materialize but I think Marvell is well positioned to take advantage of the growth in the SSD controller business.  The biggest threat as I see it to Marvell's SSD controller business may be from players like LSI who can bundle their memories with their controllers at a lower price point per controller. However, that does not ensure success as integrating these solutions have their own challenges.

 

Btw, here is another opinion about MRVL from SumZero

 

http://sumzero.com/headlines/technology_and_software/MRVL/47-buy-marvell-mrvl

 

 

[ShahKhezri]

Not that it means anything, but the correlation of MRVL and DELL is around 97%.

[beerbaron]

Not that it means anything, but the correlation of MRVL and DELL is around 97%.

 

Funny, struggled between both for a week... if I knew they were the same... :)

 

BeerBaron

[beerbaron]

http://www.sacbee.com/2012/10/18/4922195/marvell-technology-group-ltd-provides.html

 

Marvell now expects net revenue for the third quarter of fiscal 2013 will be in the range of $765 million to $785 million, compared with prior outlook of between $800 million to $850 million.

 

"The continued slowdown in the global economy during the third quarter is resulting in a weaker PC market than previously anticipated and thus lower demand from our storage HDD customers. Our SSD, networking, and mobile product revenues are tracking to be in line with prior expectations," said Dr. Sehat Sutardja, Marvell's Chairman and Chief Executive Officer. "In addition to the continued weak PC demand patterns, visibility in our other end markets remains low as we head into a seasonally softer fourth quarter."

 

That's going to be painfull tomorrow. -9% in aftermarkets!

 

BeerBaron

 

[Ross812]

I started diving into the annual reports last night. I build computers as a hobby and only use marvel controlled ssd's so I am familiar with some of their products. I was reading a seeking alpha article by an author I follow Ashraf Eassa. I found the following in one of the comments to his October 19th article:

 

Ashraf, I have been following your articles and appreciate your candid analysis, we may have a bit in common. I am a Computer Engineering graduate with about 8 years in the industry, and enjoy doing stock analysis. I have also been long MRVL, but sold today. I would like to share some of my own analysis with you.

 

Revenues at Marvell have been basically flat for the past 3 quarters (800M +/- 3%), and the entire industry has been struggling this last quarter. I don't think Marvel's revenue drop alone is enough to justify the departure of their CFO.

 

I used the departure of their CFO as an excuse to take a deep dive into their most recently filed 10Qs. One thing I noticed was that there were some important changes in their 10Qs related to their upcoming patent trial with CMU on November 27th. Search Marvell's two most recently filed 10Q's for "Carnegie Mellon Litigation", and also take a look at:

 

http://dockets.justia.com/docket/pennsylvania/pawdce/2:2009cv00290/90950

 

In relation to the CMU litigation, you will notice that in their most recently filed 10Q Marvell removed the language stating that they "cannot determine the likelihood of loss nor estimate a range of possible loss", and buried way down in the footnotes on page 35, in a totally unrelated section, Marvell added the following language "CMU has alleged that it is entitled to damages in the amount of approximately $735 million through March 2010 as a result of the alleged infringement". Although I admire the wizardy of Marvell's management in being able to bury important information deep in the footnotes of their financial statement, I don't see this as particularly shareholder friendly.

 

If you read the docket, you will see that the patents in question relate to error-correcting codes for magnetic media. These types of codes are at the heart of Marvell's HD controllers. They are presumably part of what allows Marvell to achieve the high Gigabyte per platter density frequently touted during their conference calls. HD controllers have been Marvell's bread and butter for many years, so this lawsuit goes right to the core of their business.

 

Long-term, I think Marvell could be a great investment, but I am going to sit it out until December and see how things unfold. The upcoming patent trial and related publicity does not bode well for Marvell's stock price, and I don't think the current share price reflects the risks of this trial. I would also like to see more "color" (as the analysts would put it) around the departure of their CFO.

 

I don't know how much this court case could affect Marvell, but it seems like it could be potentially damaging. I also don't like how it was hidden in the footnotes, but that is the nature of accounting. Read the footnotes!

 

 

[17thstcapital]

Good find.  Thanks for sharing.....

[beerbaron]

Jury trial by november 22, how long can such a trial last?

 

BeerBaron

[Ross812]

This will last 30 days at most if this proceeds to a jury trial. The Pennsylvania juror handbook states 3-5 days for most civil cases. I am surprised there is not more exposure of this story considering it could cost up to $1.32 a share. 

[infinitee00]

Good discussion. About the comment regarding the footnotes, I think the commenter may be reading too much into presentation of the CMU litigation in the latest 10Q ( given that the note has been there since 2010) and responding to confirmation bias.

 

I am not a lawyer and the outcome of any type of litigation is difficult to predict but if I were to take a side I would take MRVL's gladly. Although jury awards are higher than bench awards, going by past patent litigation cases - the award, if any - is likely to be much less than the $735M claimed. I would be surprised if the final award (not initial adjudication) exceeds $100M. Even though that's a substantial amount for a company the size of MRVL and is an unnecessary distraction for management, with ~$2B in net cash and about $600M in last 5yr avg FCF, I don't see a significant downside to the situation. The most likely scenario IMO is a licensing/royalty agreement and/or a reasonable nominal award.

 

From MRVL's latest 10Q

 

On August 24, 2012, the Court granted in part and denied in part the motion of no infringement and no damages with respect to extraterritorial conduct; granted in part and denied in part the motion of no infringement and no damages with respect to licensed use; and granted the motion of non-infringement regarding Group II claims. A jury trial is set for November 26, 2012.

 

To get an idea of patent litigation awards and success rates, one can find some useful information in the 2012 PWC Patent Litigation Study

http://www.pwc.com/en_US/us/forensic-services/publications/assets/2012-patent-litigation-study.pdf

 

Here are a few bullet points I wanted to highlight

 

Annual median damages awards (in 2011 dollars) ranged from $1.9 million to $16.1 million between 1995 and 2011. The median damages award from 2006 to 2011 was approximately $4.0 million.

 

...The disparity between jury and bench awards continues to widen as the median jury award amounted to more than 20 times the median bench award between 2006 and 2011.

 

...Reasonable royalties remain the predominant measure of patent damages awards, representing more than 80% of awards over the last six years.

 

..NPEs have been successful 23% of the time overall versus 34%for practicing entities, due to the relative lack of success for NPEs at summary judgment. However, both have about a two-thirds success rate at trial.

 

..All NPEs are not created equal. While university/non-profit NPEs have the highest success rate among NPE litigants, their median damages award is considerably lower than the median award of company NPEs.

 

 

Also if one looks at chart 2c of the report for the 10 largest initial adjudicated awards between 1995-2011,here's what the report says about the awards

 

It is important to note that the awards reflected in Chart 2c are those identified during initial adjudication; most of these awards have since been vacated, remanded, or reduced, while some remain in the appellate process.

 

Again, every case is different and no one can predict what a jury might award. But if one were to go through the dockets posted above (to try and ascertain the strength of the claims made by CMU), look at historical patent litigation claims statistics, the odds in favor of CMU being awarded the entire $765M look slim. Even if they were awarded the full amount in the initial trial, CMU can look forward to years of appeal process ( during which time MRVL will earn more than the claim in FCF) and possibly a much lower final award or royalty agreement. In any case, I am not selling my MRVL shares just yet.

 

Cheers !

 

[dcollon]

I might have added wrong, but it looks like Greenlight bought a little more MRVL in the qtr.

[beerbaron]

I might have added wrong, but it looks like Greenlight bought a little more MRVL in the qtr.

 

Nope, plain flat.

 

 

[infinitee00]

I am a little wary of 'star' investors buying as it often clouds my judgement based on fundamentals.

 

Greenlight had 25.6M shares last quarter and it now up to 32.73M ( almost a 27%).

 

David Tepper also increased his stake by 60+ %.

 

..for what it's worth Cramer recommended a sell..I guess it's time to load up the truck !!  ;D

 

[dcollon]

infinitee00,

 

Thanks for confirming my math. :)  Didn't notice Tepper, so thanks for mentioning it.

 

 

[Ross812]

Let dataroma do the math for you. I love this site:

 

http://www.dataroma.com/m/stock.php?sym=MRVL

[cpan]

 

Part of whats hurting MRVL is affecting all semiconductor stock.  I am also monitoring INTC and ALTR which have both been hit very hard as well.  I should have been smarter to get TSM instead which seem to be the one selling shovels to gold diggers. 

[beerbaron]

In the last 9 quarter they repurchased 22% of their outstanding shares! That's what I call returning money to their shareholders.

 

BeerBaron

[dcollon]

Carnegie Mellon University wins patent infringement lawsuit against Marvell - Pittsburgh Post-Gazette

Wednesday, December 26, 2012 08:12:50 PM (GMT)

 

 

The article reports that a US District Court jury found in favor of CMU in a patent infringement case against Marvell (MRVL) regarding technology for reading data from hard disks.

The jury believed MRVL knowingly infringed on the patents and awarded $1,169,140,271 in damages to CMU. The article notes that the willful violation determination could allow for the award to be multiplied by up to 3, at the judge's discretion.

The article points out that previous filings indicate that an appeal is likely.

[fareastwarriors]

Marvell Ordered to Pay $1.17 Billion for Infringing Patents

 

A U.S. jury said Marvell Technology Group Ltd. (MRVL) should pay $1.17 billion in damages for infringing patents for integrated-circuit technology held by Carnegie Mellon University.

 

Marvell, which makes chips for computers and mobile phones, fell 82 cents or 9.9 percent, to $7.43, in Nasdaq Stock Market trading at 3:12 p.m., following the verdict today in federal court in Pittsburgh.

 

Carnegie Mellon sued over use of the two patents, issued in 2001 and 2002, that cover ways to detect data stored on a computer’s hard-disk drive by filtering out noise or unwanted electrical signals. The school in a March 6 complaint said at least nine types of Marvell’s circuits use its inventions.

 

Marvell, based in Hamilton, Bermuda, had revenue of $2.95 billion for the year ended Jan. 31.

 

The case is Carnegie Mellon University v. Marvell Technology Group Ltd., 09cv290, U.S. District Court for the Western District of Pennsylvania (Pittsburgh).

 

 

 

http://www.bloomberg.com/news/2012-12-26/marvell-ordered-to-pay-1-17-billion-for-infringing-patents.html