EUR 850.00 For Business Accounts Only

Morningstar | Marvell's Trio of Moves Further Refines Portfolio; Raising Fair Value Estimate to $22

Marvell is a leading supplier of controller chips to hard-disk and solid-state drives as well as a designer of chips for the networking processor market. The firm holds intangible assets in the controller business and networking applications, but we do not think these have given Marvell a moat. First, despite Marvell's reducing its dependence on a declining HDD market, HDD-related sales are still a large portion of total revenue. We further expect increased competition from SSD manufacturers developing their own controllers. In our view, networking competitors will remain strong and curb Marvell’s ability to gain market share. We believe the firm is likely to generate excess returns for the next decade, but this is largely a function of a rising connectivity tide raising all boats; we expect Marvell will struggle to get out of Broadcom's and Intel’s wake.The firm’s controllers provide input/output interface control between the storage device and the host system. We believe the firm faces greater competition in the higher-growth SSD controller market than in the declining HDD space. We believe the need for further production differentiation will drive increasing amounts of competition from Western Digital, Toshiba, and others. We believe the storage business faces headwinds, but Marvell has done well to mitigate these by focusing the storage portfolio on nearline HDDs and customized SSD controllers.Marvell has also buttressed its networking chip business through the acquisition of competitor Cavium. This greatly expanded its reach into the infrastructure networking market, and Marvell is now able to serve clients in a variety of functions and price points. However, we maintain that the firm faces stiff competition from semiconductor giants like Broadcom and minnows such as Barefoot. We believe the purchase of Cavium supports our optimism for Marvell's management, which was installed in 2016 after a series of strategic missteps, litigation, and accounting controversies by previous leadership. But we believe management has a tough task to carve out a sustainable niche.