In this post, we will be analyzing Marvell as part of the series analyzing major players in the iPhone’s component ecosystem. A related, speculative post about Marvell written prior to the iPhone’s release may also be worth reading.
Marvell Technology Group (NASDAQ: MRVL) is a global leader in storage, communications, and consumer silicon solutions. It was founded in 1995 and has more than 5000 employees. In 2006, it had $1.67 billion in revenue with a loss of $12 million. On a positive front, its sales increased 34% to $2.24 billion in 2006. The company bought Intel’s Xscale communications-chip division for $600 million. Though this acquisition has added to its growth, it has affected its profitability. The company expects the effect to last till the summer of 2008.
In Apple’s iPhone, Marvell provides a wireless connectivity device, 88W8686, a 90-nm WLAN part. On the launch of the iPhone on June 29th, its stock price rose $1, or 5.8%, to $18.2.
According to the teardown analysis by iSuppli, Marvell stands to get $6 per unit sold. [We mistakenly reported this as $15.35 earlier.] And if Apple meets the sales estimates of 3 million units this year and 10 to 12 million in 2008, and up to 40 million in 2009, it could equate to upto $18 million this year, upto $36 million in 2008, and upto $120 million in 2009 for Marvell. However, it is believed that this would translate into a very thin profit margin for the company. On July 2nd, following the teardown reports, Marvell’s share price dropped 13 cents, or less than a percentage point, to $18.08. [The estimates are somewhat rough, since Apple’s various newer models will have different component cost structures. Nevertheless, I want to make the point that Marvell IS a significant component provider for the iPhone, which is very likely to lead to other design wins in the handset world.]
Anyway, scoring a design win in the iPhone definitely improves its visibility in the industry and the stock bounced back the next day. Another black cloud hanging over Marvell was that it had delayed filing its financial reports. On July 10th, after Marvell filed its first quarter reports, its share price surged to $19.10. Many analysts have upgraded their rating for Marvell on the belief that it has left its problems behind.
While the revenue outlook for the company looks good, Marvell needs to figure out how to improve its profitability, since it might be scaling a relatively low gross margin business. The only place to look for that improvement, therefore, would be in the operating expenses, which at this point, seem outrageously high. [Disclaimer: I haven’t studied this in enough detail to know what the cost-shaving levers are.]
This segment is a part in the series : iPhone’s Component Ecosystem