Comms chips

For Marvell, TCB Might = M&A

Will Marvell be the next semiconductor company caught in the industry's wave of consolidation? The new regime at Marvell Technology Group is imposing a level of fiscal discipline at the company that is already earning better ratings from financial analysts, in part because it is putting Marvell in a good position to buy another company or be bought.

Two years ago, Marvell Technology Group Ltd. (Nasdaq: MRVL) was getting dinged heavily by lagging sales in the cellular market, and then it exacerbated its problems by getting mired in accounting problems that kept it from issuing a financial report for over a year. During that time, dissident investor Starboard Value bought into Marvell and engineered a coup of the company's founders.

Between Starboard's infamy for prepping companies for sale and the consolidation going on in the semiconductor industry anyway, Marvell has been a natural subject of merger and acquisition (M&A) speculation ever since. Last March, Marvell had to bat down rumors that it was being bought by Broadcom.

The company turned in third quarter results that included a profit of $73 million on $654 million in revenue; the income was higher than expected. New CEO Matt Murphy also announced the company intends to buy back $1 billion in stock, while protecting the company's dividend, which led to yet another bump in the company's rising stock price.

Two weeks ago the company announced a plan to sell off non-core operations that represent $100 in annual revenue and $60 million in annual costs. At the time, the company said it would identify what those operations are during yesterday's conference call, but it didn't. CFO Jean Hu explained that that's because the operations are for sale. (See Marvell to Divest Businesses, Lay Off 900.)

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Murphy said only that he considers the company's core strengths are in the high-speed movement of data, particularly in the storage, network infrastructure and wireless connectivity markets.

The company recently came out with some products for 25G, for example, and Murphy said moving forward, Marvell will be focusing on WiFi technology, shifting from the low end towards markets that value high performance, such as enterprise access points, automotive, a connected home and gaming, he said. (See Marvell ICs Ease Data Center Path to 25G.)

During the company's quarterly call with analysts, Murphy hammered on how he's all about cutting costs and focusing on high-margin products.

Cowen analyst Timothy Arcuri heard the message loud and clear, and asked Murphy about all this financial discipline leading to possible M&A activity. "So I guess the right way to just think about that would be that you want to take the cost out of the existing business to fully go into a deal, to be clear, right?"

Murphy responded, "Yes... that's clearly the priority. We have to keep our eyes open. We're not unaware of what's happening in the industry... And so over time, we think we can grow this company organically and inorganically, but first things first."

The implication is that there isn't any specific M&A activity being considered right now, but Marvell is going to put itself in position for whatever opportunity pops up.

— Brian Santo, Senior Editor, Components, T&M, Light Reading

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