Could This Company Be Marvell-ous?

These days it seems difficult to be a Marvell Technology (NASDAQ: MRVL  ) investor. Naysayers are quick to claim the semiconductor maker's competition is too great, and that the company is dying along with the PC industry. It also doesn't help that in December 2012, Marvell's share price reached $7.26, its lowest point in two years. But after the company's Q1 earnings call on May 23, it looks like Marvell might be staging a comeback. Here's why.

Changing the conversation
While quarterly revenue declined to $734 million, Marvell still beat many analyst expectations, which were around $720 million. According to CEO Dr. Sehat Sutardja, this was because of a "better than normal seasonal demand" in the company's networking and storage markets.

Though its financials have a lot of room for improvement, Marvell is still generating revenue as the PC market declines, while also reaching into the mobile processor arena. The latest offering to come through the pipeline has been Marvell's PXA1088 chip, which boasts processing capabilities, HD video, and Internet connectivity for tablets and smartphones. As fellow Fool Michael Lewis put it, if the company was really going down with the PC ship, it would have been done for a long time ago. Instead, Marvell has grown annually at roughly 10.6% over the past five years.

Critics have blasted Marvell for stepping into mobile, a tight industry that is only becoming more competitive. The company is all too aware of the drama in mobile, having recently been swapped out by BlackBerry for Qualcomm as prime chip maker. Since then, Marvell has adapted a new strategy by becoming a major chip provider to different geographies, including China Mobile's  (NYSE: CHL  )  line of Samsung Galaxies. At 17.3%, Samsung had the largest smartphone market share in China during Q1, so it's wise for Marvell to want to hitch itself to this wagon.

Buybacks make the man
Another noteworthy aspect of Marvell's earnings report was that the company had repurchased 20 million shares (worth $200 million) during the past quarter. It's generally a positive sign when a company chooses to buy back a significant amount of shares -- it boosts the value of however much stock an investor is already holding. But for Marvell, a company currently declining in revenue and shifting its earnings strategies, it might come off as a bit strange.

Taking a look at the cash flow statement, however, it becomes clearer that Marvell has the means to rally investor morale with a share buyback. The company had approximately $626 million in free cash flow at the beginning of 2013, and no long-term debt. In short, Marvell could repurchase $200 million worth of shares and still have a healthy amount of cash left over. A buyback plus a quarterly dividend with a 44% payout ratio could help many investors stick with this company during a troubled time.

Picking up the pieces
It might be a long time before Marvell gets back into the good graces of Wall Street, but don't count this chip maker out just yet. The company is taking on some savvy business strategies to boost revenue, and is treating investors to a healthy dividend and a substantial share buyback. Marvell is jumping from the sinking PC ship, and while its life raft could use a little inflating, it's by no means a goner.

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4/17/2014 3:59 PM
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