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Marvell Has Another Marvelous Quarter

Marvell Technology Group (NASDAQ: MRVL  ) is a fabless vendor of storage controllers, networking silicon, and chips for mobile and wireless applications. As the PC market began to contract in 2012, the shares were hit fairly hard as sales of hard disk controllers saw a drop commensurate with the PC's decline. Further, Marvell's mobile chips -- once booming as a result of the company's success with BlackBerry long ago -- had become a less-than-inspiring story. However, the most recent quarter showed some positive indications for Marvell's long-term business prospects.

The storage story is looking very nice
As a key hard disk drive controller vendor, Marvell has a business that depends highly on winning designs with hard disk drive giants Seagate and Western Digital (NASDAQ: WDC  ) . Interestingly enough, the company saw storage-related revenues (44% of the company's total sales) up 7% year over year despite what Marvell's management claims is a shrinking total addressable market for hard disk drives.

Source: Marvell.

Given these results, it's clear that Marvell is gaining share against rival Avago (NASDAQ: AVGO  ) (via its acquisition of LSI) in hard disk drives. Further, as the world continues to adopt flash-based solutions (this is mostly consumer, although enterprise adoption of flash continues to increase), Marvell seems very well positioned, reporting double-digit growth for multiple quarters and market share of about 50% -- against a backdrop of a number of merchant vendors as well as in-house flash controller teams.

Networking's looking iffy
During the quarter, Marvell reported networking results down 3% year over year, despite double-digit sequential growth for its Xelerated network processing unit chips and increased demand for SoCs for network attached storage and Ethernet routers. The offset here was that demand for switches and controllers was soft. Digging a bit deeper, if we look at peers Broadcom (NASDAQ: BRCM  ) and Freescale (NYSE: FSL  ) , we can see that there's probably a share loss story going on here as well.


Networking Revenue (in Millions)

Year-Over-Year Change










Data sourced from company earnings releases.

Marvell's networking business has been underperforming its peers' revenue growth rates for quite some time. That said, this is Marvell's smallest business as a percentage of its revenues, so given the strong performance of its storage business and (as we'll soon see) the performance of its mobile and wireless division, the weakness can be forgiven.

Mobile is looking pretty hot
Marvell's final major reportable segment -- mobile and wireless -- is en fuego. This division constitutes roughly 33% of the company's total revenue base and saw growth of 30% quarter over quarter and a mind-blowing 139% growth year over year, driven principally by strong shipments of LTE platforms to handset vendors in China.

Source: Marvell.

Notably, Marvell seems to be quite content targeting the very mass-market, high-volume smartphone market and isn't investing too much to try to play in the "hero device" (i.e., very high-end smartphone) segment. This is a compelling strategy, as it requires much less R&D than what, say, Qualcomm (NASDAQ: QCOM  ) spends developing custom graphics processors, CPU cores, and so on. Further, the modem technology doesn't have to be bleeding edge -- for example, Marvell's success is with a category 4 LTE modem, while Qualcomm and Intel are readying category 6 LTE-Advanced modems.

That said, the big risk in the longer term is that the companies with the larger sheer R&D might (i.e., Qualcomm) that are duking it out for the high end will also imbue their lower-end offerings with superior capabilities or simply drive much better economies of scale than Marvell can. Nearer-term, Marvell seems to have a head-start on MediaTek for the low-cost LTE market, which has given it a nice market share position and a relatively tame competitive environment. However, as MediaTek and others launch their assaults on the low end, margins may yet again come under pressure until further consolidation happens.

Foolish bottom line
Marvell had yet another marvelous quarter, fueled by the continued rebound in storage and explosive mobile and wireless growth. The networking business doesn't look as healthy as its peers', suggesting share loss, but this is Marvell's smallest reportable segment and probably not as big a priority to the company as it is to, say, a Broadcom or a Freescale. Marvell has done a great job and, if it can extend this momentum, could continue to deliver meaningful value for its shareholders.

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