Marvell, National Semi Beat Estimates

According to iSuppli’s teardown of the iPhone 3GS, Marvell’s WLAN chip has been replaced by Broadcom’s single-chip Bluetooth/FM/WLAN chip. However, Marvell still seems to be doing well, as it swung to a profit and beat estimates in its recent quarter. Another component maker in the original iPhone, National Semi, also recently reported results. Let’s take a closer look at both companies’ performances.

On August 27, Marvell Technology Group (NASDAQ:MRVL), a semiconductor company with annual revenue of $2.95 billion, reported its second quarter results. Q2 revenue declined 24% y-o-y but grew 23% q-o-q to $641 million. Marvell swung from a loss of $111.5 million, or $0.18 per share, in the previous quarter to a net profit of $58 million or $0.09 per share. Non-GAAP net income was $119 million, or $0.18 per share, compared to net loss of $31.9 million, or $0.05 per share in Q1. Analysts had expected earnings of $0.14 per share on revenue of $621 million. Q1 analysis is available here.

Marvell continued to improve its gross margin by tightening its expenses. The company plans to reduce its headcount by 15% by the end of the year. Q2 gross margin was a record 55%, the highest since the first quarter of 2003. Marvell ended the quarter with $1.3 billion in cash, up approximately $196 million sequentially and $390 million from the same period a year ago.

During the second quarter, storage end markets grew over 20% q-o-q and accounted for about 50% of total revenues. Within the emerging solid state drive market, Marvell said that it is on track to nearly double its annualized revenue from the sale of solid state or SSD controllers. Marvell is also set to gain market share thanks to deals with Seagate Technology Inc. (NASDAQ:STX) and Hitachi Ltd. (HIT) that will begin next year.

Sales of networking products increased by more than 10% q-o-q and accounted for about 20% of total sales. In Q3, Marvell expects networking product sales to grow in the low double-digit range.

New products accounted for about 5% of total revenue and 25% of the sequential revenue growth, and Marvell expects this trend to accelerate with new products accounting 10% of total revenue in Q3.

In the mobile and wireless end market, revenue was up about 20% q-o-q and accounted for 20% of revenues. The company expects revenue in this market to increase at least another 20% in Q3 as embedded wireless applications and communication processor products become more widely accepted. In the printer and enterprise end markets, there was 100% growth in demand for Marvell’s 11n Wi-Fi devices.

Though it lost Apple’s iPhone 3GS, its Wi-Fi chip W8686B12 is part of the Palm Pre. As guest author Nalini Kumar Muppala pointed out, Marvell lost out on the design to Broadcom mainly due to competitive pricing. Although the iPhone win would have added significantly to its market share, it was not expected to add to Marvell’s margins. Marvell has gained much visibility from its design win in the iPhone and has a good presence in the WLAN market. It is present in RIM and Palm Pre, two challengers to the iPhone. However, competition is tough: RIM is sourcing from multiple suppliers and Qualcomm fulfils 25% of RIM’s processor needs.

As Nalini suggests, Broadcom might steal its slot from an updated Pre, and it needs some big design wins. It also needs to work on providing RF and GPS solutions. For a more detailed analysis on the company, read Marvell: Wireless Outlook.

According to a recent report, Marvell intends to enter the cellular chip market in China and increase its wireless chip market share to 25% by 2012. It will be collaborating with China Mobile (CHL), the largest cellular company in the world by number of subscribers, and also plans to expand its staff in China.

For the third quarter, Marvell expects revenue in the range of $680 million to $730 million or a sequential increase of 6% to 14% and non- GAAP gross margin in the range of 55%. Analysts expected third-quarter earnings of $0.16 per share on revenue of $647 million and gross margin of 52%. The stock is currently trading around $16 with market cap of about $10 billion. It was upgraded by Roth Capital from Hold to Buy last week.

On September 10, National Semiconductor (NYSE:NSM), a leader in analog power management technology with annual revenue of about $1.46 billion, reported results for the first quarter of fiscal 2010 that beat estimates. Q1 revenue was down 32% y-o-y and up 12% q-o-q to $314 million. Net income was $29.8 million, or $0.13 per share, compared to a net loss of net income of $29.8 million, or 13 cents per diluted share last quarter but down 63% from net income of $79.6 million or $0.33 per share last year. Analysts expected earnings of $0.06 per share on revenue of $300 million. Q4 coverage is available here.

Gross margin improved to 61.1% from 58.3% last quarter due to better product mix, factory utilization and benefits from closing down the Suzhou plant earlier than expected. However, margin was down from the record high of 66% last year. National is also in the process of closing its Texas fab plant, which should improve gross margin by about 4% in the Q1 of fiscal 2011. The company ended the quarter with $734.1 million in cash.

There are concerns that National is overdoing its cost-cutting spreeand might not be able to keep up with the resurging demand. Let’s wait and see.

Bookings increased by 17% q-o-q driven by higher order rates in North America, Europe and Japan. Revenue from the broad industrial market increased 15% q-o-q and accounted for 40% revenue. Communications and networking sales grew 9% q-o-q and accounted for about 11% total sales.

Sales to the mobile device market grew 7% q-o-q and accounted for 30% of total sales. Apart from shipping to enterprise and high-end mobile phones, National has also been shipping to some of the new Android phones that are about to be launched by Motorola, Samsung, LG, HTC, and Sony Ericsson.

The strength in the quarter came mainly from to the company’s core analog business, especially its power management and power efficiency products. Power management products account for about half of National’s revenues and grew 19% q-o-q, with a significant portion of that growth coming from industrial Simple Switcher products. National is looking to penetrate new high-growth areas such as LED lighting solutions, renewables, personal mobile devices, and medical applications. It has received and fulfilled first orders for its SolarMagic power optimizer solutions from Europe, Japan, and the Americas.

National expects Q2 revenue to increase by 3 to 8% q-o-q or a range of $325 to $340 million versus analyst estimates of $317 million. The stock is currently trading around $15 with market cap of about $3.5 billion.