Marvelous Marvell Hasn’t Run Out of Steam

Solid prospects in data storage and mobile should ensure Marvell's outperformance.

Apr 1, 2014 at 3:30PM

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.

Are you ready to profit from this $14.4 trillion revolution?
Let's face it, every investor wants to get in on revolutionary ideas before they hit it big. Like buying PC-maker Dell in the late 1980s, before the consumer computing boom. Or purchasing stock in e-commerce pioneer in the late 1990s, when it was nothing more than an upstart online bookstore. The problem is, most investors don't understand the key to investing in hyper-growth markets. The real trick is to find a small-cap "pure-play" and then watch as it grows in EXPLOSIVE lockstep with its industry. Our expert team of equity analysts has identified one stock that's poised to produce rocket-ship returns with the next $14.4 TRILLION industry. Click here to get the full story in this eye-opening report.

Harsh Chauhan has no position in any stocks mentioned. The Motley Fool owns shares of Western Digital.. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information