Marvell, InterDigital Optimistic

We recently saw that leading semiconductor companies Qualcomm, Broadcom, and TI reported robust quarters mainly due to strong demand in Asia. Is the trend reflected in the results of peers? Let’s take a closer look at Marvell and InterDigital to see what their results can tell us about the state of the semiconductor industry, especially its partnerships with 3G phone players.

On May 29, Marvell Technology Group (NASDAQ:MRVL), a leading semiconductor company with annual revenue of $2.95 billion, reported first quarter results that met estimates. Q1 revenue was down 35% y-o-y but up 2% q-o-q to $521.4 million. Net loss narrowed to $39.5 million, or $0.06 per share from last quarter’s loss of $65.0 million, or $0.11 per share. Non-GAAP net income was $31.9 million, or $0.05 per share.

Through tough cost-cutting measures, Marvell has managed to keep the gross margin above 50%. GAAP gross margin in the quarter was 50.6% versus 50.7% last quarter and 51.6% last year. Cash flow from operations was up 11% to $144.5 million. The cash position at the end of the quarter was $1.1 billion, up $310 million from last year.

Marvell CEO Dr. Sehat Sutardja said that demand improvement in the quarter reflected the rebalancing of inventory levels throughout the supply chain to better reflect actual market consumption. However, the demand is likely to fluctuate over the next several quarters. With Marvell signaling just an inventory correction rather than a rebound, its shares dipped.

However, Marvell provided an optimistic outlook that topped estimates. For the second quarter, it expects revenue in the range of $540 to $580 million and non-GAAP EPS in the range of $0.07 to $0.13. Analysts expected earnings of $0.07 on revenue of $532.2 million.

The stock is currently trading around $11.16 with market cap of about $6.9 billion.

On May 6, InterDigital (NASDAQ:IDCC), a leading IP licensing company with annual revenue of $228.5 million, reported its first quarter results. Revenue increased 26% to $70.6 million mainly due to the license deal with Samsung that brought in $21.4 million in patent license royalty revenue. Technology Solutions revenue decreased to $1.3 million from $2.2 million last year. Net income was $15.4 million, or $0.34 per diluted share, compared to net income of $7.3 million, or $0.15 per diluted share last year.

Free cash flow was $43.1 million and the company ended the quarter with $185.9 million in cash. In March, it announced a new $100 million stock repurchase program.

Yesterday, InterDigital and Nokia completed hearings over four patents. In 2007, InterDigital had filed an infringement suit against Nokia and is seeking to ban the import of Nokia mobiles infringing on its patents. InterDigital had recently settled a similar lawsuit with Samsung for $400 million. InterDigital controls 50% of the 3G market, and if it also settles a deal with Nokia, it would be controlling 80%. Within 3G, InterDigital is a strong beneficiary of the iPhone momentum due to its licensing deal with Apple and its alliance with Infineon.

InterDigital also plans to move into the adjacent markets of Wi-Fi, WiMAX and wireless services and applications. In March, it announced a repositioning plan that includes the cessation of further product development of the SlimChip modem technology. As part of this plan, the company reduced its headcount by 100.

In the second quarter 2009, InterDigital expects to report recurring revenues in the range of $72.0 to $75.0 million reflecting a full quarter revenue from the Samsung deal and 60 to 80% increase in technology solutions revenue due to increased royalties from SlimChip IP.

The stock is currently trading around $27 with market cap of about $1.2 billion. It hit a 52-week high of $32.73 on January 26.