I'm not going to lie. As an investor, I nearly gave up on Marvell Technology (MRVL) at several points last spring. On Wednesday, that patience bore fruit. Actually, the shares have not underperformed the broader semiconductor space in months. but yesterday was special. For one thing, Marvell increased the firm's long-term sales growth target to 15% to 20%, from the prior target of 10% to 15%. For another, the firm made clear its target of returning more than 50% of free cash flow to shareholders. According to the most recent data available, Marvell has generated $751 million (ttm) in unlevered free cash flow, and had $559 million (Q2) in net cash as well as $785 million (Q2) in accounts receivable on the books.
We learned far more than just how consistently the firm thinks it can grow, or what we can get out of it, as important as those two specifics are. Originally, Marvell was part of my 5G portfolio a couple of years ago, back when I thought the 5G upgrade cycle (though it is still early) was going to be a much bigger deal in my life by now. Just thinking, I think MRVL and Apple (AAPL) are the only members of that original 5G portfolio still holding places in my broader book. As time has worn on, it became obvious and the firm drove home on Wednesday, that this firm is key to the data center, which is now expected to drive 40% of revenue generation.
The cloud has become the firm's largest end market. Marvell designs special chips for the cloud that are unique to the firm for now. Marvell has also entered into the arena of automotive chips, and that industry now represents the fastest growing opportunity to Marvell's immediate front, and should build incrementally over the next decade potentially.
Some Nitty Gritty
Marvell expects a key element in the firm' place as a provider for the data center to come from a new silicon platform based upon Taiwan Semiconductor's (TSM) 3nm process technology with advanced die to die interface and advanced 2.5D "chip on wafer on substrate" packaging technology. The 3nm multi-chip platform includes two complementary advanced interfaces. The first of these is a flexible extra short reach interface for connecting multiple die on a packaging substrate for applications.
The firm is also putting together an ultra low power and low latency parallel interface with the highest bandwidth density in the industry. This interface will be compatible with Open Compute Project standards, and will enable high performance chiplet solutions by connecting multiple silicon devices on an interposer. (That's the dumbed down version. True story.)
On The Chip Supply Shortage
Not at the investor event, but last week on CNBC, Marvell Technology CEO Matthew Murphy surmised that the current shortage may continue through at least the end of 2022 if the current level of demand continues unabated. Murphy said "Every single end market for semiconductors is up simultaneously." Murphy added (hopefully) that some parts of the market could experience a slack in demand, freeing up capacity to relieve conditions elsewhere. Murphy sounded almost optimistic during the interview... "It makes no sense to me. There's no way from my point of view that every segment of the electronics industry stays up and to the right, ripping demand for the next 12 months."
Marvell Technology will not be reporting third quarter earnings until probably the last week of November. Currently, the consensus view of the 25 sell side analysts I can find that cover the name, is for EPS of $0.38 on revenue of $1.15 billion. Performance like that would be earnings growth of 40% on sales growth of 53.3%.
Of those 25 analysts, 11 happen to be five star rated (at TipRanks) analysts who also opined in response to the investor day event. Currently nine of the 11 rate MRVL as a "buy" or their firm's equivalent. Two of the 11 currently have a "hold" rating on the name. The average price target of the 11 is $79.45, with an outlier high of $100 (Hans Mosesmann of Rosenblatt) and a low of $63 (Joseph Moore of Morgan Stanley).
As of the end of the most recent quarter, the firm was 59% owned by 1,743 funds, up from 1,387 funds one year earlier, for an increase of 356. At that time the fund with the largest stake in the firm appeared to be the Fidelity Blue Chip Growth Fund at 3.24%.
Readers will see that MRVL had successfully broken out of a $51.50 pivot (early April) created by a double bottom pattern in mid-June. This led to the period of basing consolidation that you see in the upper right. This is a pattern in its own right with a $64 pivot. The stock is attempting to break out past that pivot this morning. There has been a small gap created that I am not sure needs to be recognized. Should that pivot hold as support, we indeed have a new ballgame. On top of that, the shares are not yet technically overbought.
Target Price: $80 (up from $68)
Panic: $59 (up from $52)