Marvell’s Price Target Looks Achievable

Yesterday, Marvell reported a strong Q1 2009 that beat analyst estimates helped by its cost-cutting and strong sales of wireless products. Earlier coverage is available here and here.

In my last post on Marvell, I said Marvell’s shares would recover if its options scandal gets sorted. We also saw how it has a better shot at profitability with its contractual obligations with Intel over the XScale deal coming to an end. After having three interim CFOs, Marvell will finally have a permanent CFO, Clyde Hosein who was the former CFO of Integrated Device Technologies and was also at IBM. Earlier this month, Marvell agreed to pay a $10 million fine to settle backdating charges. So with its management and the options issues seemingly sorting out (I won’t say sorted out, there is still more cleaning up to do), combined with its strong results, the stock is looking up. It shot up 22% and is currently trading around $17.

Last month, Vijay completed his in-depth analysis on Marvell, in which he looks at its strengths: its storage and Ethernet businesses, where it is no.2 behind Broadcom. Of particular interest is his analysis of Marvell’s wireless business: its position in the WLAN market and its Mobile Strategy.

Vijay values the stock at $21 if it keeps a tab on its expenses and makes the right moves in the wireless market that will be driven by its application processor business.

With that in perspective, let us look at its Q1 results. Net revenue was $804 million, up 27% y-o-y but down 5% q-o-q. GAAP net income was $69.9 million, or $0.11 per share compared with a net loss of $52.8 million, or $0.09 per share in Q1 2008 and net income of $1.3 million, or $0.00 per share in Q4. Adjusted gross margin increased 3.1% points from last year to 52.0% partly due to new efficiencies at XScale.

A major highlight in the first quarter was the commencement of volume shipments of its HSDPA communication processor to a key “smart phone customer” that is expected to ramp up to high volumes through the year. (Smells like a deal for the new 3G iPhone? Hmm …) It also had Garmin, Trimble and Samsung introducing products with its application processors.

For Q2, Marvell expects revenue between $830 and $840 million, a growth of 26% to 28%.

Things are looking up for sure, and the $21 price target may not be a stretch, after all, especially if indeed they have cracked a high volume smart phone customer.