Marvell Technology's (Nasdaq: MRVL) management talks a very big game. CEO Sehat Sudartja sees a massive new market developing, and he wants to sell boatloads of chips to support it. Boastful bluster or a vivid vision? Let's have a look.
This week, the semiconductor designer reported third-quarter earnings of $0.11 per share on $791 million in sales. That's up from a penny-per-share loss last year, on $758 million of revenue. It also translates into $246 million of free cash flow, a company record that blows the doors off last year's paltry $8 million cash take. Mmmmm, yummy cash.
So business is good at Marvell, despite a challenging macroeconomic environment. That alone should tempt value-minded investors to take a peek, since this stock has suffered more than the overall market this year. But that's not the most exciting investing angle on Marvell today. Let's get back to that new market, and how it could fuel an entire sector for years to come.
Mr. Suthardia likes how notebooks are becoming more portable, while smartphones are getting smarter. Where the twain shall meet, he argues, new opportunities in mobile convergence will arise.
The Apple (Nasdaq: AAPL) iPhone and Google (Nasdaq: GOOG) Android platform are early examples of Web-browsing phenoms that come close to replacing traditional computers for many users. If these gadgets get just a little bit better, and the price creeps below the magic $200 mark, consumer demand should explode. Management sees that happening next year. "We believe consumers within emerging markets will drive significant volumes far in excess of the current notebook PC market and likely a greater volume than smart phone markets," the CEO said.
It's important to note that Marvell makes essentially every component you'd need for building such a converged mobile computer, including wireless controllers, ultra-mobile CPUs, and GPS products. So if the market goes the way Mr. Suthardia thinks it will, Marvell stands to profit handsomely from that tectonic shift.
A rising tide lifts all boats, though. Maybe you don't like Marvell for some reason (feel free to tell us why not), but Texas Instruments (NYSE: TXN) and STMicroelectronics (NYSE: STM) could also build almost an entire superphone in-house. And don't forget about the handset makers. Motorola (NYSE: MOT) and Research In Motion (Nasdaq: RIMM) could certainly use a new market right about now, as the plain old mobile phone sector runs into slowing growth.
I was fully prepared to call shenanigans on Mr. Suthardia's optimistic claims, but I can't, and I won't. His conjectures all make sense. A cheap but powerful device that hooks into Web 2.0 and cloud-computing services do nearly every routine task that a regular desktop or laptop can accomplish today. When money is tight, this cheap yet powerful alternative looks like a winner -- and so do the companies that build it.
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