(By Balaseshan) Brean Murray, Carret & Co. analyst Mike Burton initiated coverage of Marvell Technology Group Ltd.(NASDAQ:MRVL) with a "Hold" rating, believing Marvell will benefit from the long-term growth drivers in Communications, Computing, and Mobile.
In the near term, Burton's negative stance on PC inventory levels and consumption trends bode poorly for the second half of 2012 and calendar 2013, and MRVL in particular is facing increased competition in TD-SCDMA – 2 dynamics that he believes are very well known by investors.
The analyst models a relatively lower estimate to fundamentals, which he believes is already at least partially priced in; at this point, he believes MRVL shares could actually trade up on a negative preannouncement and thus his "Hold" rating.
Burton believes the company will miss the October quarter, due to weak PC demand, but he is not as bearish as much of the Street regarding the future for HDDs. For MRVL, specifically, in the near term, it is gaining share at Seagate by virtue of its mobile 500G/platter, which continues to ramp and should drive better-than-industry performance.
In the near term, the analyst sees spending on Communication Equipment as subdued, due to service cutting its capex for 2012. Over the longer term, he believes that MRVL will be the beneficiary of several trends driving IT spending such as the mobile data explosion, cloud computing, connected home, and virtualization.
Qualcomm Inc. (NASDAQ:QCOM) is just the latest OEM to come after MRVL's position in TD-SCDMA after Spreadtrum and MediaTek. With a TD-SCDMA iPhone (based on QCOM) likely around the corner, the analyst believes Marvell will continue to lose market share, but we also anticipate a significant jump in units next year, with 30 million units expected to ship in 2012 and 60 million in 2013.
Looking at inventory and consumption trends, Burton comes out net negative (negative bias due to higher exposure to PCs), as he views Computing downstream inventory levels in Q2 as elevated in PCs relative to recent levels — net negative — he also sees forward consumption trends in the second half as unfavorable for the PC supply chain.
On the Networking side, the analyst views trends as positive, due to low inventory levels and increasing year-over-year consumption growth in the Communication Equipment supply chain.
MRVL is trading down 1.29% at $9.21 on Friday.