(By Mani) Marvell Technology Group Ltd. (NASDAQ: MRVL) is set to benefit from near- and long-term opportunities and is in a position to gain share in solid state drives (SSDs), connectivity and baseband.
California-based Marvell's microprocessor architecture and digital signal processing drive multiple platforms including high-volume storage solutions, mobile and wireless, networking, and consumer products.
Marvell is making strides in both baseband (China market) and connectivity such as 8897 chip, .11ac MIMO Combo that likely pressures incumbents on performance in the mid- to high-end segment.
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"It sees opportunity for considerable growth through F14 on wins for its dual and quad-core solutions (including Samsung, ZTE, Huawei, white box)," RBC Capital Markets analyst Doug Freedman wrote in a note to clients.
The company is also poised to realize higher content trends (.ac, integration, consoles opportunity) across several key markets where the total available market (TAM) opportunities are rising.
The company appears confident in its ability to win in high-growth mobile computing markets as the company is OS agnostic.
Meanwhile, storage to benefit from a rebound in production (despite lower TAM), lean inventories and share gains.
"In our view, HDD TAM in CQ2 (expected to be flat to slightly down Q/Q) likely represents the bottom as our expected higher production rates reflect an uptick in Storage revenues in F2Q14 (JulQ)," Freedman said.
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HDD pricing, on a like-for-like basis, may decline slightly ahead of improving TAM in the second half of 2013. HL HDD drive demand continues to be strong with capacities trending higher. Going forward, the risk is substantially mitigated as inventory rebalancing at OEMs is in the rear-view mirror while retail channel inventory remains lean.
Moreover, Marvell would be a key beneficiary from Seagate Technology Plc's (NASDAQ:STX) ramp of 500GB SSD drives. At Seagate, Marvell is positioned increase share as Seagate grows its 500G SSD drives. In the enterprise segment, Seagate is expected to also transition to its controllers. As a result, Seagate could likely become a 10-15 percent customer to Marvell in fiscal 2014.
In addition, mobile segment is looking promising with potentially strong demand for routers and wireless devices. Combos could become more competitive in 2013.
"We do believe that its newer .ac combos, which are likely to enter the market in 2H13 (4x4 MIMO in routers and 2x2 in wireless devices), could result in slight share gains against the usual suspects," Freedman noted.
Mobile and Wireless growth could be considerable through fiscal 2014 on wins for its dual- and quad-core solutions including at Samsung (Galaxy Tab 3 7"), ZTE, Huawei, and white box. Marvell could begin to see an impact from focused hiring on the mobile side, which will be targeted at improving software solutions and protocol stack in-order to deliver full platform solutions.
Meanwhile, valuation remains compelling at about 12 times its 2014 consensus estimate versus peers at 15 times as the company continues to garner design wins and subsequent share gains across nearly each of its segments with exposure to content increases.
In addition, free cash flow generation remains highly attractive, and $2 billion in the balance sheet would be sufficient to fund shareholder-friendly actions that in turn would boost valuation.
"Multiple should expand towards peers as early signs emerge that order resumptions are occurring in the Storage segment, with share gains in Networking and Wireless ramp ahead (3G and 4G Unified platform)," Freedman added.