Investor Destination

Marvell Technology - Participating in 5G Expansion

2019 was a challenging year for the semiconductor sector. Marvell Technology’s (NASDAQ: MRVL) revenue and margin declined; however, investors are excited about its future.

2015 2016 2017 2018 2019
Revenue (in millions) 2,602 2,301 2,409 2,866 2,699
EPS (1.45) 0.14 0.88 (0.30) 2.34
Revenue Growth (30%) (12%) 5% 19% (6%)
Gross Margin 46% 56% 61% 51% 50%
Operating Margin (29%) 6% 18% 2% (9%)
Debt to Asset 17% 13%
FCF % Sale 6% (18%) 22% 18% 10%

Growth drivers

In recent years Marvell has shifted its growth strategy towards 5G, automotive connectivity, cloud, data center, and enterprise. It has broadened its product portfolio and target market through acquisitions. It had secured a few design wins for its products in 5G base stations, enterprise switches, automatic Ethernet, and data center storage.

In recent years the company has been restructuring its business. It divested businesses that are not aligned with its growth strategy and acquired new businesses. Due to acquisitions, its operating expenses have increased, and margins have suffered. The company expects margin improvement due to revenue growth and its recent divestiture of the WIFI business. The company expects revenue growth this year as its key customer is aggressively rolling out 5G in Korea. That customer also has a strong presence in Japan and the US, and Marvell expects 5G adaption in those countries as well.

5G is at the initial stage of a multi-year growth, and the company is expanding its product portfolio. Its recent design wins have strengthened its relationship with Samsung and Nokia, and the company is ready to participate in 5G expansion.

Storage

In the storage business, it has reduced its exposure to commodity client business, and strengthened its position in enterprise and cloud. In the past, it generated 30 – 40% revenue from the client SSD market. Now it generates only 5% of the revenue from that segment by offering sophisticated products such as Ethernet attached storage. The good news for Marvell is that the data-center market could be another beneficiary of the 5G rollout as the impending data boom will create the need for more storage capacity and low latency to enable rapid data transfer. The COVD-19 caused stay-at-home economy is increasing the demand for enterprise and data center storage.

It has a relatively strong balance sheet, but acquisitions have increased its goodwill. Since 5G is expanding most probably during this downturn, the company won’t write-down goodwill impairment. It pays a dividend.

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