Marvelous Marvell Hasn’t Run Out of Steam

Chipmaker Marvell Technology (NASDAQ: MRVL  ) has continued rising in 2014 after a solid performance last year. This isn't unexpected from a company that's enjoying solid tailwinds in the storage and mobile markets. The growing adoption of solid-state drives, or SSDs, key customers such as Western Digital (NASDAQ: WDC  ) and Seagate (NASDAQ: STX  ) , and the roll out of LTE in China should continue to drive Marvell shares higher in the future.

A shrinking PC market isn't a problem
Together, Western Digital and Seagate accounted for 36% of Marvell's revenue in the last fiscal year. While this might look like a disadvantage to some, given that the PC market hasn't been in the best of health lately, it isn't the case. The PC market was down 9.8% in 2013, but the forecast for the current year is relatively better. Shipments of traditional desktop and notebook PCs are slated to drop 6.6% this year, according to Gartner. This signifies that the PC market is gradually stabilizing.

Moreover, the retirement of Windows XP by Microsoft will also force businesses to upgrade to newer systems, thereby reversing the PC's decline, to an extent. The relatively better sales of PCs this year would come as an added bonus for Marvell, which has been flourishing despite weak PC sales.

The key to Marvell's success is that it is gaining market share at Western Digital, and the advent of SSDs has turned out to be a solid catalyst. In addition, hard disk drives are also being used for non-PC applications such as server storage and data centers. Marvell enjoys a 50% share of Western Digital's enterprise business, and since the storage giant is witnessing solid growth in the enterprise segment, Marvell stands to benefit.

Huge opportunity ahead in data
According to The Motley Fool's Jim Mueller, data storage is expected to grow tremendously to 6,000 exabytes in 2020 from just under 1,000 exabytes needed this year, primarily driven by enterprise systems. Western Digital is targeting this segment with its acquisitions. Last year, Western Digital acquired Virident Systems and sTec for a combined value of $1 billion to bolster its enterprise portfolio.  

While Western Digital is chasing enterprise growth, Marvell is looking to gain more share at its biggest client. It recently launched a couple of new, high-performance SSD products and has a strong pipeline going forward.

In addition, Marvell is also working on hybrid storage technologies. Both Seagate and Western Digital have been working on hybrid storage drives for quite some time now. Last year, both storage giants collaborated to make hybrid hard drives, which led to growth at Marvell. Going forward, hybrid HDD shipments are expected to increase from 3.4 million units in 2013 to 126.9 million by 2018, according to Gartner. 

Seagate has already been in the hybrid game for a few years now. Last year, the company launched a new hybrid drive that closed the gap on SSDs, while this year, it plans to introduce hard drives with capacity exceeding 5TB. 

As already mentioned, both Seagate and Western Digital are key contributors to Marvell's top line. Also, since the two companies are a virtual duopoly in the storage business, they will be the prime beneficiaries of data storage growth. Thus, Marvell is seemingly well-positioned to make the most of growing data storage by virtue of its two biggest clients.

Mobile: Another key catalyst
This year, Marvell is expecting its LTE solutions to gain steam. The company is "deeply engaged with multiple customers" for its LTE solutions. For example, in North America, Marvell's 4G LTE solution is now fully certified for voice and data at AT&T, while certification at another large telco is expected soon. In addition, Marvell is not targeting just smartphones and tablets for its LTE chips; the company is also targeting Ultrabooks.

Moreover, Marvell is looking to tap the growing demand for LTE-enabled handsets in China with its low-cost 4G solutions. Since all three major telcos in China now have TD-LTE licenses, the demand for LTE handsets in the Middle Kingdom is expected to grow at a supersonic pace. China Mobile is expected to spend $8.2 billion on 4G handset subsidies to accelerate the adoption of these handsets. As such, the telco giant expects that it will be able to ship 200 million LTE smartphones this year. 

Final words
Marvell is riding some really exciting tailwinds that should help it sustain its growth momentum, and its 1.6% dividend yield as well. After posting 20% revenue growth and 100%-plus earnings growth in the previous quarter, Marvell looks destined for better times ahead. Also, the company has zero debt and a strong cash position that should enable it to reward investors handsomely in the long run.

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