2 Reasons Why Marvell Technology Is Still a Good Buy

Chip maker Marvell Technology (NASDAQ: MRVL  )  looks set to end 2013 on a high note. The stock has almost doubled so far this year, despite a possible $1.17 billion fine related to a patent infringement lawsuit by Carnegie Mellon University.

But, investors seem focused on Marvell's prospects and impressive clientele. The likes of Western Digital (NASDAQ: WDC  ) , Seagate Technology, Samsung (NASDAQOTH: SSNLF  ) , etc. are tailwinds for Marvell as they place it in a good position to benefit from the storage and mobile markets. As such, it wasn't surprising when Marvell once again turned in a solid performance in the recently reported third-quarter, while outlook for the ongoing one is also quite impressive.

As far as the possible fine is concerned, Marvell seems to have it covered, which is why focus should instead be on its prospects going forward. The company has been witnessing tremendous growth in storage and mobile, which together account for 77% of overall revenue, and expects the momentum to continue.

Storage continues to impress
Marvell's storage business has done well, despite weakness in the PC market. The company has been gaining market share for its hard disk drive controllers, or HDDs. In addition, it has been seeing increased demand from customers as the storage industry seems to be stabilizing and demand for non-PC applications continues to increase. 

Also, the presence of storage heavyweights such as Western Digital and Seagate on the client list is an important advantage. Western Digital is probably Marvell's largest customer, as it accounted for almost 25% of revenue in the previous fiscal year. Shipments to Western Digital seem to be increasing at a good pace, leading to market share gains. In fact, Marvell's enterprise shipments to its "top-notch America-based HDD customer" grew 20% on a sequential basis in the previous quarter. 

Going forward, Marvell is expecting to land more design wins in HDDs, leading to higher enterprise shipments and market share gains in calendar year 2014. Traditional HDDs aside, Marvell's solid-state drive, or SSD, business is expected to drive growth in the storage segment.  

In the third quarter, Marvell's SSD business touched a new high in terms of shipments and revenue. The company saw another quarter of strong, double-digit sequential growth, and there are good indications that this performance could continue going forward. Marvell is now shipping its fourth-generation SATA SSD products, giving it a lead over competitors. In addition, management claims that the company is seeing more design win activity for its next-generation SSD solutions.

The fact that Marvell customer Western Digital has been making some impressive moves to strengthen its SSD business could be another tailwind. According to IDC, the enterprise SSD market is expected to triple by 2017, from $2.5 billion in 2012, and Western Digital is aware of this opportunity.

Western Digital recently completed the acquisition of sTec for $340 million, as it looks to bolster its position in the enterprise SSD market. According to AnandTech, sTec has more than 100 SSD-related patents, which could help Western Digital increase its share in the SSD market on the back of innovative products. Additionally, Western Digital's revenue from non-PC applications is now 53%, up from 35% five years ago. Overall, these developments suggest that Marvell could realize significant gains from its biggest customer in the future. 

Look out for mobile
The mobile and wireless business is Marvell's biggest growth driver right now. Revenue from this segment increased 60%, sequentially, in the previous quarter, as Marvell saw solid demand from Chinese customers. Unit shipments of its W-CDMA and TD-SCDMA 3G products doubled in the previous quarter and Marvell also began shipping its 4G LTE solution in Asia. 

More than 10 new smartphones and tablets launched during the previous quarter were based on Marvell's 3G platform, with China Mobile using the platform for its first branded smartphone. Given Marvell's presence and strong sales in China, the company looks to be in a good position to benefit from the roll out of 4G LTE in the nation.  

The Chinese Ministry of Industry and Information Technology recently issued initial LTE network access licenses for LTE smartphones, including those powered by the Marvell 4G LTE. Also, Marvell's relationship with China Mobile could prove handy as the world's largest telecom company is set to roll out its 4G service next month.  

In addition, Marvell has numerous design wins at Samsung for the Galaxy series of phones and tablets. For instance, Samsung utilized Marvell's dual-core chip platform in its 7-inch Galaxy Tab 3. Also, analysts at Wedge Partners are of the opinion that Marvell is gaining share at Samsung, at Broadcom's expense.  Samsung is reportedly ramping up production of its next flagship. The company is expected to release the device next March, which indicates that Marvell could see a boost in orders from Samsung.

The bottom line
All in all, Marvell looks well-positioned going forward. The stock doesn't look too expensive at 14 times forward earnings, and a dividend yield of 1.6% makes the deal sweeter. Throw in prospects from the SSD industry, an uptick in the HDD market, and Chinese smartphone growth, and it becomes clear that Marvell is a potential winner.

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