Should Marvell Get Out of Qualcomm's Way?

Qualcomm (NASDAQ: QCOM  ) continues to hold a healthy lead over competitors MediaTek and Marvell (NASDAQ: MRVL  ) in the Chinese LTE smartphone applications processor market. In fact, according to a report from Digitimes, Qualcomm is set to exit the first half of 2014 with 80% share of this market, with Marvell and MediaTek fighting for the scraps.

The report also includes some very interesting insights into the competitive landscape in this market and serves to reinforce why Marvell -- despite some of the success it is currently seeing -- may be the next to exit the smartphone applications processor market.

Qualcomm's Snapdragon 400 is proving immensely popular
According to the report, Qualcomm's integrated Snapdragon 400 platform has been very widely adopted by Chinese LTE handset vendors thanks to "friendly pricing" and "strong performance/function" balance.

The part integrates a quad-core ARM Holdings Cortex A7 CPU, Qualcomm's Adreno 305 graphics, and the MDM9x25 LTE-Advanced modem block found in Qualcomm's higher-end mobile products. This is a very competitive solution, and it's no surprise that it is a commercial hit. 

What about Marvell's solution?
Digitimes further reports that Marvell made available its own LTE solution at around the same time Qualcomm did, but its chip shipments significantly trail Qualcomm's. This, the author of the piece asserts, is due to higher component costs and less competitive technology support. Put simply, Qualcomm can dedicate more resources to servicing customers and has greater scale.

Illustrating this financially
Roughly 33% of Marvell's revenue base this year (sell-side consensus sits at $3.89 billion) will probably be mobile and wireless related (about $1.3 billion). Compare this with Qualcomm's QCT -- which includes modems, apps processors, connectivity, and the like -- which did $16.715 billion in sales during its fiscal 2013 and is set to grow this year. 

Qualcomm can -- and does -- outspend Marvell by a significant amount in all things mobile, which allows it to enjoy technological leadership and a presence in everything from the ultra-high end to the lowest end.

Further, the semiconductor foundries are likely to be much more aggressive on wafer prices for a company like Qualcomm, which sells nearly $17 billion worth of semiconductors per year, than they will be for the likes of Marvell, which sells under $4 billion worth.  

The end result is that Qualcomm sews up all of the high-margin mobile chips and then uses that scale and technological edge to profitably attack the low end of the market.

The economics could deteriorate over the next six to 12 months
Right now, investors seem to be happy that Marvell is experiencing such robust revenue growth as a result of its investments in mobile. However, as the market gets more crowded, as MediaTek more aggressively ramps its LTE solutions later this year and Intel rolls out integrated 3G/LTE products in early 2015, the economics may begin to look less favorable for Marvell.

Is Marvell taking its eye off the high-margin networking ball?  
Another factor to consider is that one of Marvell's key competitors in the networking and broadband spaces, Broadcom (NASDAQ: BRCM  ) recently announced its intention to exit the mobile apps processor business.

This frees up resources for the company to start more aggressively competing in its remaining markets  of broadband and network infrastructure, which could put further pressure on Marvell's networking chip sales.

To illustrate, Broadcom grew its infrastructure business by 13.5% in the most recent quarter and guided for yet another sequential increase in the current quarter. In contrast, Marvell's networking business saw a 3% year-over-year decline, and management guided to flat revenues in this segment for the current quarter. 

Foolish bottom line
If the Digitimes report is correct that Marvell is at a material disadvantage to Qualcomm in these key areas (and from both companies' respective abilities to spend, it stands to reason), then it may be in Marvell's best interests to simply exit the market and redirect those resources to higher ROI ventures.

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Read/Post Comments (3) | Recommend This Article (2)

Comments from our Foolish Readers

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  • Report this Comment On June 22, 2014, at 11:20 PM, 45679939 wrote:

    Not fully agreed.

    Marvell is not target to compete QCOM in smart phone market.

    Its policy seems to maintain the position and scramble market from others, including MTK, Intel, Broadcom(its order in Samsung definitely goes into Marvell).

    So, it is meaningless to discuss the competition between Marvell and QCOM.

  • Report this Comment On June 23, 2014, at 7:33 PM, TMFAeassa wrote:

    @ 45679939

    Thank you for your comment. Could you elaborate further on your views of Marvell's strategy? You've got my attention :-)

  • Report this Comment On June 23, 2014, at 9:45 PM, 45679939 wrote:


    Welcome, you are more professional. I just provide some personal views here. Please correct me if i miss anything.

    QCOM focus more on high-end and mid-end smart phones like iPhone and others. It is obviously high margin market.

    2nd tier players like MTK, Marvell, Broadcom, Intel have to focus mid-end and low-end solutions, no matter how eagerly they want to play in high-end market(which has more margin). Simply because they could not beat QCOM. Intel is the case.

    How do you think?

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Ashraf Eassa

Ashraf Eassa is a technology specialist with The Motley Fool. He writes mostly about technology stocks, but is especially interested in anything related to chips -- the semiconductor kind, that is. Follow him on Twitter:

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