Wednesday, October 24, 2012

Marvell Sell Thesis

Marvell Technology Group released revised guidance figures for Q3 on Thursday October 17th, and it looks as though Marvell is headed down even further. Due to negative PC growth in the last quarter, Marvell’s Hard drive storage segments have lagged behind previous guidance, causing them to revise revenue guidance to the range of $765 - $785 million, down from $800 - $850 million. Marvell still holds the best technology in the Hard Drive sector, being the only company that can put 500GB of storage on a single platter, but overall market demand is down and that is not enough of a competitive advantage to overcome the macro-environment. The SSD, Networking, and Mobile segments have remained at their previous guidance levels, which is a bit of bright news for Marvell. EPS guidance has fallen from $.22 - $.26 per share, down to $.17 - $.22 per share. Also announced with the guidance revision was the resignation of CFO Clyde Hosein, he was brought in to make fundamental strategic and business reformations at Marvell, however he was unable to accomplish this which leads us to believe that Marvell’s culture and founder-CEO have made changes near impossible. Due to being a semiconductor company, Marvell is trapped in one of the cyclical downward spirals that we often see in this sector. The slowing PC market is affecting Marvell more than we had anticipated. Although Marvell still remains in a great financial position, with $3.83 per share of cash, their slowing revenue growth is too big of a factor for the company in the short term. With Windows 8 coming out shortly, there is a strong possibility of a turnaround for the PC market for the next few quarters at least, if the operating system performs well. Given these circumstances we would like to sell Marvell to prevent any further downside, and revisit the stock once Windows 8 sales figures are available to find a possible buy opportunity. 

-Ryan Ranado, Technology Sector Head

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