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Infineon Looks Good After Its Wireless Sale to Intel

Posted on Tuesday, Dec 7th 2010

Both chipmakers Marvell (NASDAQ:MRVL) and Infineon (NYSE:IFX; IFX.DE) last month reported strong results for their recent quarter as demand for their chips increased in an improving economy. Infineon, which recently sold its wireless unit to Intel, proposed its first dividend payout in a decade.

Infineon’s Financials

Infineon last month reported fourth quarter revenue of €942 million ($1.25 billion), up 55% y-o-y and 6% q-o-q. Net income was €390 million ($517 million) from €11 million ($15 million) last year and €126 million ($164 million) last quarter. It ended the quarter with a gross cash position of €1.727 billion ($2.29 billion). For fiscal year 2010, total revenue increased 51% to €3.295 billion ($4.373 billion) and net income was €660 million ($876 million) versus a loss of €674 million last year. Infineon proposed a dividend of €0.10 per share for fiscal 2010.

Fourth quarter sales in the ATV segment increased 2% q-o-q to €340 million. IMM segment revenue increased 11% q-o-q to €413 million.

For the fiscal year 2011, Infineon expects revenue to grow 10%. Infineon expects revenues for the first quarter of the 2011 fiscal year to be flat to down slightly compared to the fourth quarter of the 2010 fiscal year. The stock is trading around $7.6 with a 52-week range of $3.27–$7.67.

Chart forInfineon Technologies AG (IFX.DE)

Infineon, which looked shaky early in the year, is more steady following its wireless unit sale to Intel for $1.4 billion. Infineon is the leader in the industrial market with 10.2% share (up from 7.5% in 2007) and the no.2 company in the automotive market with 9.5% in 2009 (up from 9% in 2007). In the chip card security market also it is the leader with 25.5% share. Its renewed focus on these markets and its cost-cutting measures are finally paying off.

Marvell’s Financials
Marvell last month reported third quarter revenue of $959.3 million, up 20% y-o-y and 7% q-o-q driven by strong demand from its mobile, wireless, and storage end markets. Net income was $256 million, or $0.38 per share, versus $220 million, or $0.33 per share, last quarter and $202 million, or $0.30 per share, last year. Gross margin was 59.3% versus 57.5% last year and 59.3% last quarter. The company ended the quarter with a cash balance of $2.68 billion. During the quarter, Marvell repurchased $60.6 million worth of its shares.

In the networking end market, which accounts for about 70% of Marvell’s revenue, sales declined 9% due to weakness in the enterprise networking end market and inventory reductions at its customers.

In the storage end market, revenue increased about 3% sequentially and represented just over 40% of total revenue. Marvell has a new design win at Seagate which is expected to ramp in the second quarter of 2011. But for the current quarter, it expects sales in storage end market to be flat on a sequential basis. As tablets bring in the era of flash drives, analysts fear sales of hard disk drives (HDDs) will be cannibalized.

In the mobile and wireless end market, sales increased more than 20% sequentially and accounted for about 35% of total revenue. Marvell recently won a contract from Microsoft to supply chips for Kinect, its motion gaming system. Marvell has 75% of the gaming console market but expects seasonal weakness to affect its sales.

For the fourth quarter, Marvell expects total revenue to decrease sequentially to a range of $900 million to $950 million. The stock is trading around $20 with a market cap of about $13 billion; the 52-week range is $13.87–$22.87.

Chart forMarvell Technology Group Ltd. (MRVL)

Tablets, which use flash memory and solid-state drives (SSDs), are expected to cannibalize the sales of HDDs. Marvell early this year won the design for a 9-inch Android-based tablet for the One Laptop per Child (OLPC) scheme in which the laptop will cost as little as $75. But overall, Marvell has limited exposure to tablets.

Tiernan Ray on Barron’s reports that Goldman Sachs chip analyst James Schneider last week downgraded Marvell to Hold on concerns about its limited exposure to tablets and smartphones:

“The ‘muted’ growth in the drive market past 2011 will likely limit Marvell’s own revenue growth, even as the company increases its share of chips for drives from a current 56% to 65% by the middle of 2012.”

Marvell supplies chips to RIM’s Torch smartphones, but as RIM continues to lose share to iPhone and Android smartphones, Marvell also looks shaky on this front.

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