How low-key Marvell makes money?

Marvell

Introduction

Founding

Marvell Technology (ticker: MRVL) is an American chip manufacturer that specializes in manufacturing chips for storage, communications and consumer electronics products. The company was co-founded in 1995 by Dr. Sehat Sutardja, an Indonesian Chinese, his wife Weili Dai, and his brother Zhou Xiuwu. It is headquartered in California, USA.

Company Size

According to TrendForce statistics, Marvell Technology was the sixth largest professional semiconductor designer in the world by revenue at the end of 2023.

IPO

An initial public offering on June 27, 2000 (near the end of the dot-com bubble) raised $90 million.

Main Products

Marvell Technology now ships more than 1 million processors based on the ARM architecture every day, which not only includes mobile phone application processors, but also includes communication processors, storage, WiFi and other chips.

In summary, Marvell produces data processing units (DPUs) that bundle CPUs, networking interfaces, and programmable data acceleration engines together. It also sells infrastructure, Wi-Fi, and custom chips, as well as networking and storage devices.

Storage control chip

Marvell started with storage chips. They were committed to designing a CMOS-based read channel for disk drives as their first product. Seagate Technology (ticker: STX) became their first customer.

Marvell’s products include SSD controllers, mechanical hard drive controllers, mechanical hard drive amplifiers, storage accelerators, and QLogic Fiber Channel adapters and controllers. On May 27, 2021, Marvell announced the launch of the first NVM Express SSD controller supporting PCI Express 5.0.

Network Communications

Marvell’s networking products include FastLinQ Ethernet interface cards and controllers, Ethernet switches, Ethernet PHYs and automotive Ethernet.

Marvell provided Wi-Fi chips for the original (first-generation) Apple (ticker: AAPL) iPhone. The Marvell Mobile Hotspot (MMH) is an in-car Wi-Fi connection.

Alphabet’s (ticker: GOOGL) Chromecast products are powered by Marvell SoC. That is the Marvell ARMADA 1500 Mini SoC (88DE3005) for the first generation Chromecast and the Marvell ARMADA 1500 Mini Plus SoC (88DE3006) for the second generation Chromecast and Chromecast Audio. Synaptics (US: SYNA) acquired Multimedia Solutions on June 12, 2017. The ARMADA 1500 SoC is now produced under a different name.

ARM processor

In 2006, it spent US$600 million to acquire Intel’s (ticker: INTC) ARM-based processor XScale mobile phone and related business units, making it the main supplier of ARM processor chips on the market. In 2018, it acquired Cavium, making it even more powerful in the supply of ARM processor chips.

ASIC customized chips

Mainly through the successive acquisitions of GlobalFoundries’ ASIC subsidiaries, Avera Semiconductor, helping it become the world’s second largest ASIC manufacturer, second only to Broadcom (ticker: AVGO) in market share.

Marvell also offers Customer Specific Standard Products (CSSPs), where customer accelerators and interfaces can be integrated directly into Marvell’s Octeon processors. Marvell acquired Avera Semiconductor in 2019; Avera was formerly the custom ASIC division of GlobalFoundries (ticker: GPS). Even earlier, Avera was actually the custom ASIC division of IBM (ticker: IBM).

Marvell provides customized ASICs tailored to customers’ specific design goals. It also provides ASIC development services to the aerospace and defense industries through its independent subsidiary Marvell Government Solutions (MGS). In a joint venture with TSMC, Marvell launched 3nm products.

Broadcom and Marvell are already well-known customized chip duos in the chip design industry. The most famous, important, and successful case of Marvell is that Marvell is an old partner of Amazon. Trainium of Amazon’s AWS was created by Marvell’s ASIC BU.

For the dedicated discussion on ASIC, please see my post of “ASIC market is getting bigger, and related listed companies in the US and Taiwan

Infrastructure Processor

On November 12, 2019, Marvell announced that its ThunderX2 SoC has been deployed on Microsoft (ticker: MSFT) Azure. On March 2, 2020, Marvell announced the launch of OCTEON Fusion and OCTEON TX2 5G infrastructure processors, and provided 5G infrastructure for Huawei, Nokia (ticker: NOK), Ericsson (ticker: ERIC), ZTE and Samsung Processor transactions. On March 16, 2020, Marvell announced plans to launch ThunderX3 and ThunderX4 in 2022. On August 28, 2020, Marvell announced plans to refocus its ThunderX server team on custom chip business.

Security Chips

Marvell’s security-related products include LiquidSecurity HSM adapters and NITROX cryptographic offload engines.

Data processing chips

Marvell OCTEON and ARMADA DPU integrate CPU, network interface and programmable data acceleration engine on dedicated electronic circuits.

Acquisitions

Marvell steadily grew as it acquired smaller companies and sold plenty of chips for the cloud, 5G, automotive, enterprise networking, and artificial intelligence markets.

Through the years, Marvell acquired smaller companies to enter new markets.

DateAcquired companyExpertiseCost
October 2000Galileo TechnologyEthernet switches, system controllers$2700M in stock
June 2002SysKonnectPC networking
February 2003RadlanEmbedded networking software$49.7M
August 2005Hard disk controller division of QlogicHard disk & tape drive controllers$180M in cash + $45M in stock
December 2005SOC division of UTStarcomWireless communications (3G)$24M in cash
February 2006Printer ASIC business of AvagoPrinter ASICs$240M in cash
July 2006XScale product line from IntelCommunications processors and SOCs$600M in cash
January 2008PicoMobile NetworksCommunication software for IWLAN and IMS
August 2010Diseño de Sistemas en Silicio S.A. (“DS2”)Spanish company, PLC communication ICs
January 2012XeleratedNetwork Processors
July 6, 2018CaviumARM Processors$6B in cash & stock
May 2019Avera SemiASICs$650 million in cash
September 2019Aquantia CorporationASICs Mutli-Gig Ethernet$450 million in cash
April 2021Inphi CorporationMixed-signal integrated circuit, Provide high-speed data transmission chips$8.2 billion
October 2021InnoviumData center network switches, focus on cloud and edge computing switch chip design$1.1 billion
credit: wiki

Operating performance

2023 Q4 Report

Marwell remains sensitive to the overall chip cycle, which is just beginning to return to growth after an early slump, with revenue rising just 1% to $1.43 billion in the quarter, just above guidance of $1.42 billion.

Like other companies in the semiconductor industry, Marvell has achieved strong growth in the data center field, with revenue increasing 54% year-over-year to $765.3 million. But revenue fell by double-digit percentages across all of the company’s other product categories, including enterprise networking, carrier infrastructure, consumer and automotive/industrial.

Gross margin fell to 46.5% from 47.5% in the quarter, and GAAP operating expenses also increased, including increased stock-based compensation and $26 million in restructuring charges. Adjusted earnings per share were flat at $0.46, in line with expectations.

Data center business is accelerating

The data center market is undergoing a massive upgrade cycle to meet customer demand for artificial intelligence chip equipment. So far, NVDA (US: NVDA) has been the dominant player in this area, but it is expanding into other component and system manufacturers, including Marvell’s data infrastructure products.

Data center revenue accounted for 39% of Marvell’s business in the fourth quarter of 2023, an increase of 21% from the previous quarter.

In summary:

Its data center segment is growing rapidly, aided by the demand for artificial intelligence.

The rest of the business is still battling cyclical headwinds and underperforming.

Outlook

Maywell expects full-year revenue to decline in fiscal 2024, which ends in late January 2024, before returning to growth in fiscal 2025. As for earnings, earnings are expected to be $1.51 per share in 2024, growing to $3.75 per share by fiscal 2027.

Risks

Revenue sources concentrated

70% of Marvel’s revenue comes from data centers. One of the unnamed customers is likely to be Western Digital (ticker: WDC) or Seagate (ticker: STX), accounting for up to 24% of its fiscal 2024 revenue.

Revenue decelerated

Marvell’s revenue fell 7% in fiscal 2024 as macro headwinds curbed growth in its carrier, enterprise networks, consumer, automotive and industrial markets. Analysts believe that the economic slowdown will continue into fiscal 2025, and it may take until fiscal 2026 before the macro environment may improve.

Capital market performance

Share price performance

Investors are increasingly optimistic about Marvell’s prospects. The stock has gained 98% in 2023 and 39% so far in 2024. Demand for Marvell’s AI-related semiconductor solutions is taking off.

Marvell’s shares have soared 80% in the past 12 months, outperforming the broader S&P 500 by nearly 54 percentage points. Marvell’s stock has still rallied about 250% over the past five years. That easily beat the S&P 500’s gain of nearly 90% during the same period.

It went public on June 27, 2000, and a $10,000 investment in its IPO would be worth over $200,000 today. From fiscal 2001 to fiscal 2024, which ended this February, Marvell’s revenue grew at a compound annual growth rate (CAGR) of 14%.

Valuation

Marvell stock is not expected to be profitable until 2024. And Nvidia’s profits have been staggering. While Marvell stock generates positive free cash flow, the $856 million in free cash flow it generated over the past year puts the stock’s price-to-free cash flow ratio at nearly 80x. That’s a pretty rich valuation for a stock that’s only growing 12%.

The stock’s high forward price-to-earnings ratio of 40x suggests investors are counting on the company to beat those expectations, which is likely what the company must do to justify the stock’s premium valuation. The company will likely continue to report weak overall revenue growth in the near term, but as long as data center revenue grows at a high pace due to artificial intelligence demand, the stock may continue to reach new highs in 2024.

Marvell
credit: Marvell Technology

Related articles

Disclaimer

  • The content of this site is the author’s personal opinions and is for reference only. I am not responsible for the correctness, opinions, and immediacy of the content and information of the article. Readers must make their own judgments.
  • I shall not be liable for any damages or other legal liabilities for the direct or indirect losses caused by the readers’ direct or indirect reliance on and reference to the information on this site, or all the responsibilities arising therefrom, as a result of any investment behavior.
error: Content is protected !!