Marvell is the leader in DPUs and PAM-4 optics and the clear second in enterprise and cloud Ethernet

Business Strategy & Outlook

Marvell Technology has emerged as a strong competitor in the networking chip market following a multiyear business shift to acquisitions, divestitures, and organic development to focus on high-growth cloud, 5G, and automotive markets. Between data processing units, or DPUs, optical interconnect, and Ethernet solutions, Marvell has one of the broadest networking silicon portfolios in the world, and it is primed to steal market share from incumbent Broadcom with bleeding-edge technology. Marvell has exited its low-margin legacy markets of consumer hard disk drives and Wi-Fi chipsets to focus on its networking portfolio and used the acquisitions of Cavium, Avera, Aquantia, Inphi, and Innovium to expand out of its enterprise market niche into the rapidly growing data center and 5G markets. Marvell is the leader in DPUs and PAM-4 optics and the clear second in enterprise and cloud Ethernet. Marvell will use a hefty research and development budget to keep up with heavyweights like Nvidia, Intel, and Broadcom and set up top-line growth over the next 10 years, but it is less certain about its ability to earn excess returns on its investment while doing so. The firm hasn’t carved out an economic moat yet and are waiting to see it prove an ability to achieve growth and margin expansion organically.

Marvell’s recent financial history has been choppy as a result of CEO Matt Murphy’s aggressive overhaul of the business’ focus. The reorganization is squarely in the firm’s rearview mirror now and forecast midteens sales growth and immense margin expansion over the next 10 years. The trends toward disaggregated networks and merchant silicon, as well as 5G and data center build outs, will be secular tailwinds for Marvell. The combination of 2021 acquisitions Inphi and Innovium under Marvell’s umbrella will create a dangerous combination to Broadcom in the high-performance switching arena and enable share gains. Marvell has the right portfolio to invest aggressively in organic growth, but don’t rule out further acquisitions to bolster its competitiveness and enter adjacent markets.

Financial Strengths

Marvell to focus on deleveraging with its free cash flow, though there are no more acquisitions. As of Jan. 29, 2022, the firm carried $614 million in cash and $4.5 billion in total debt—largely taken on to acquire Inphi. Despite taking on significant debt in fiscal 2022, Marvell closed the fiscal year within its debt-to-adjusted EBITDA target range, at 1.6 times. Marvell is to stay leveraged but to pay down debt as it matures. The firm’s free cash flow generation to ramp up toward $2 billion a year by fiscal 2026, up from $650 million in fiscal 2021, as it exacts material operating leverage with top-line growth. Marvell will prioritize maintaining its dividend and won’t have to deleverage to fund maturing notes. Marvell also has a $750 million revolver available if it encounters a sudden liquidity crunch.

Bulls Say

Marvell has best-of-breed data processing units and optical interconnect products that should allow it to benefit from the rapidly growing cloud and 5G markets.
The combination of Inphi and Innovium under the Marvell umbrella could give it a technological advantage to Broadcom in high-performance networking.
Marvell to exact significant operating leverage as it incorporates acquisitions and adds volume to the top line.

Company Description

Marvell Technology is a leading fabless chipmaker focused on networking and storage applications. Marvell serves the data center, carrier, enterprise, automotive, and consumer end markets with processors, optical interconnections, application-specific integrated circuits (ASICs), and merchant silicon for Ethernet applications. The firm is an active acquirer, with five large acquisitions since 2017 helping it pivot out of legacy consumer applications to focus on the cloud and 5G markets.

(Source: Morningstar)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require. The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents. Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material. Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.