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Marvell Takes a Bit of Intel

Craig Matsumoto
6/27/2006

Intel Corp. (Nasdaq: INTC) is selling off a piece of its communications business, sending its cellphone and smart-handset chips to Marvell Technology Group Ltd. (Nasdaq: MRVL) in return for $600 million.

The highest-profile parts of the purchase, announced today, are two chips with names: “Hermon,” the PXA9xx processor found in the BlackBerry Blackberry 8700; and "Bulverde," the PXA27x chip used in the Palm Inc. Treo and Motorola Inc. (NYSE: MOT) Q, among other devices.

Intel is undergoing a 90-day internal review, after which it expects to sell off some businesses. The Marvell sale, expected to close in four or five months, represents the first big-ticket item to go.

There's been some speculation that Intel might sell off the IXP line of network processors and its optical-networking chips as well, but analysts aren't convinced that Intel is that discouraged with telecom. (See Will Intel Trash Telecom?)

Marvell could pick up "the vast majority" of the 1,400 employees associated with its purchase, CFO George Hervey said on a conference call with analysts this morning. Marvell didn't discuss layoffs, but some cuts would seem likely: Intel manufactures the chips itself and will continue to do so for Marvell, but over time, Marvell expects to move production to foundries.

"We expect significant headcount cuts," writes Needham & Co. analyst Charlie Glavin in a note issued today, adding that previous Marvell acquisitions saw attrition of 25 to 50 percent.

The sale brings Marvell into the cellphone business, where it hasn't managed to produce chips to rival those of Broadcom Corp. (Nasdaq: BRCM), Qualcomm Inc. (Nasdaq: QCOM), or Texas Instruments Inc. (NYSE: TXN). Hervey noted that the businesses acquired from Intel are picking up about $100 million per quarter in revenues.

The catch is that Marvell now faces tough competition from those big names. "The handset market is getting very crowded, and we believe Marvell is late coming into this market," Glavin writes. "While Intel’s focus has been on the high-end smartphones, MRVL made it clear that it would develop newer products that compete in the mass market."

Moreover, the chips sell at lower margins than Marvell is used to. Marvell expects to take a 10 percent hit to earnings in its fourth quarter, which ends in January.

Investors didn't take kindly to that news. Marvell stock fell $6.11 (12%) to $45.79 in late morning trading. Intel was up 4 cents (0.2%) at $18.22.

On the plus side, Glavin notes that Marvell is picking up some 3G and HSDPA basebands still in development. Marvell, which was unable to produce its own 3G basebands, could end up integrating those chips with its other wares -- wireless LAN parts, for example -- to cater to next-generation handsets, he writes.

The sale was made for $600 million in cash, but Intel has the option to turn $100 million of that into Marvell stock.

— Craig Matsumoto, Senior Editor, Light Reading

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Pete Baldwin
Pete Baldwin
12/5/2012 | 3:50:35 AM
re: Marvell Takes a Bit of Intel
Intel was losing money on these devices, and what with the new scrutiny going on at the company ... I guess they had to go. In Intel's defense, it sounds like a tough market with tough margins.

Marvell is counting on foundry usage and aggressive process shrinks to make this business profitable. Could work, but there's plenty that can go wrong along the way.
lightbulb0
lightbulb0
12/5/2012 | 3:50:35 AM
re: Marvell Takes a Bit of Intel
though a little pricier. Dont know why intel got rid of the golden goose. It clear enough that mobile computing is the focal point of the future, not the PC!!! these people simply choose to ignore the fact and go with their political interest. Enough said/sad, intel's future is dimmer ever and further down the road. Go AMD, Go MRVL!
twill009
twill009
12/5/2012 | 3:50:34 AM
re: Marvell Takes a Bit of Intel
Intel has a horrible record of managing non-CPU business lines, and in the last few years even its CPU decisions have been pretty poor. I think some handset OEMs were also wary of getting into bed with Intel given how Intel helped hollow out the computer industry (Nokia has no desire to go the route of Compaq).

Xscale is a pretty well regarded product line and has some decent design wins, but TI's OMAP products have done even better. I am not sure whether Marvell can break the dominance TI has over the cell phone industry, but I am sure that they can scrape off a lot of barnacles plastered on the hull of the Xscale ship. Based on the figures quoted on the conference call this morning, the XScale's group's revenue per employee is less than half of Marvell's.

If anyone can get this business energized, it is Marvell since they have the best acquisiton track record in the chip industry (with the possible exception of Maxim).

The irony of today's stock action (i.e., MRVL down 15%) is that it must give pause to any company considering buying the rest of Intel's comm chip business. Marvel lost a couple of billion off its market cap today plus the $600 million purchase price plus a 10% dilution to next year's earnings. That is a high price to pay. Who is going to step up to the plate to buy the (even worse) network processor business or the NOR flash biz? No thanks.

BTW, it's strange that someone would declare the PC dead and then cheer on AMD. I'll have to think about that one.
edzed
edzed
12/5/2012 | 3:50:34 AM
re: Marvell Takes a Bit of Intel
Intel certainly made a mistake. You always have to make a major investment if you want to overtake the leaders in a large scale business. Intel simply ran out of patience.

On the other hand, can anyone explain why Marvell might have to take in-process R&D charges? Seems pretty fishy to me, but hey, what do I know? (that was a disclaimer in case Marvell has the same lawyers as Juniper, lol).
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