Could Marvell Go Even Lower?

Shares of Marvell Technology (Nasdaq: MRVL) hit a 52-week low yesterday. Let's take a look at how the company got there to find out whether cloudy skies remain on the horizon.

How it got here
You might call it a case of being in the right place at the wrong time. Or rather, in a lot of right places, all at the wrong time.

Marvell supplies hard-drive makers Seagate (Nasdaq: STX) and Western Digital with drive controllers, but those companies have been rebuilding manufacturing infrastructure devastated by flooding last year. Competitor LSI (NYSE: LSI) seems to be sneaking up on Marvell in this segment as well, so renewed manufacturing capacity might not give Marvell the boost it needs.

Marvell's also one of Research In Motion's largest chip suppliers. Anyone who's paid even the slightest attention to the smartphone wars should be able to tell you how well RIM's done lately. That ship is taking on water.

Two future avenues of growth, in LED lighting through partnership with Cree (Nasdaq: CREE) and in Chinese mobile communications chips, haven't yet borne fruit. The company's next-gen networking chip initiative also remains in drawing-board stage for the time being.

Marvell keeps beating the Street's expectations, but those expectations are understandably muted in light of the company's present position. Investors, it seems, are waiting for the next big thing to arrive, and they've been waiting a while:

MRVL Total Return Price data by YCharts

What you need to know
Marvell's not only one of the worst-performing chip makers, it's also the cheapest. But it's important to try to understand why that might be the case. Let's start with a quick earnings snapshot:

Source: Morningstar. TTM = trailing 12 months. NM = Not material due to negative earnings.

With the exception of Micron, these three companies have all grown their earnings over time, as the following chart shows:

MRVL Net Income TTM data by YCharts

Micron's big rise and fall masks a much more gradual version of the same movement in both Marvell's and Broadcom's earnings over time. No one likes to see a company making less, but a longer-term look at free cash flow trends offers one indication as to why Broadcom's done better:

MRVL Free Cash Flow TTM data by YCharts

Marvell's quite a bit off its previous peak, but Broadcom's free cash flow shows gradual improvement. Investors would like to see Marvell turn those declines around, and the company has multiple avenues to take -- but it remains to be seen if (or when) those avenues will lead to success. Right now, investors may need to play a waiting game. With a 2.1% dividend yield, they'll at least earn some return for their patience.

What's next?
Where does Marvell go from here? That will depend on how its growth prospects pan out. As I've mentioned, there are many possibilities, but many need further development. The Motley Fool's CAPS community has given Marvell a four-star rating (out of five), with a mere 5% of CAPS players who've rated it expecting the stock to continue its 52-week trend lower. Our community clearly believes in this company. Do you?

If you do -- or if you just want to keep your eye on this chip maker -- add Marvell to your Watchlist for all the news we Fools can find, delivered to your inbox as it happens. If you're looking to invest in another chip maker with diverse interests and tremendous potential, grab a copy of The Motley Fool's free research report on "The Next Trillion-Dollar Revolution." It's got all the information you need to make an informed buy today, so what are you waiting for? Click here for your copy of our free report now.