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iPhone’s Component Ecosystem: Marvell

Posted on Friday, Jul 13th 2007

In this post, we will be analyzing Marvell as part of the series analyzing major players in the iPhone’s component ecosystem. A related, speculative post about Marvell written prior to the iPhone’s release may also be worth reading.

Marvell Technology Group (NASDAQ: MRVL) is a global leader in storage, communications, and consumer silicon solutions. It was founded in 1995 and has more than 5000 employees. In 2006, it had $1.67 billion in revenue with a loss of $12 million. On a positive front, its sales increased 34% to $2.24 billion in 2006. The company bought Intel’s Xscale communications-chip division for $600 million. Though this acquisition has added to its growth, it has affected its profitability. The company expects the effect to last till the summer of 2008.

In Apple’s iPhone, Marvell provides a wireless connectivity device, 88W8686, a 90-nm WLAN part. On the launch of the iPhone on June 29th, its stock price rose $1, or 5.8%, to $18.2.

According to the teardown analysis by iSuppli, Marvell stands to get $6 per unit sold. [We mistakenly reported this as $15.35 earlier.] And if Apple meets the sales estimates of 3 million units this year and 10 to 12 million in 2008, and up to 40 million in 2009, it could equate to upto $18 million this year, upto $36 million in 2008, and upto $120 million in 2009 for Marvell. However, it is believed that this would translate into a very thin profit margin for the company. On July 2nd, following the teardown reports, Marvell’s share price dropped 13 cents, or less than a percentage point, to $18.08. [The estimates are somewhat rough, since Apple’s various newer models will have different component cost structures. Nevertheless, I want to make the point that Marvell IS a significant component provider for the iPhone, which is very likely to lead to other design wins in the handset world.]

Anyway, scoring a design win in the iPhone definitely improves its visibility in the industry and the stock bounced back the next day. Another black cloud hanging over Marvell was that it had delayed filing its financial reports. On July 10th, after Marvell filed its first quarter reports, its share price surged to $19.10. Many analysts have upgraded their rating for Marvell on the belief that it has left its problems behind.

While the revenue outlook for the company looks good, Marvell needs to figure out how to improve its profitability, since it might be scaling a relatively low gross margin business. The only place to look for that improvement, therefore, would be in the operating expenses, which at this point, seem outrageously high. [Disclaimer: I haven’t studied this in enough detail to know what the cost-shaving levers are.]

Marvell Technology Group Ltd. (MRVL)

This segment is a part in the series : iPhone’s Component Ecosystem

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Hi Mitra,

I am more bullish on Skyworks whose components go into iPhone.

Compare the PE and the Revenue accrued/iphone sold to the entry barriers for other players to join the Apple ecosystem and you will know why.

Regards,

BSE Gems Friday, July 13, 2007 at 10:16 AM PT

Hello Mitra,

Care to share where did you get the Marvell chip price mentioned below?
“According to the teardown analysis by iSuppli, Marvell stands to get $15.35 per unit sold”

Other sources said the Marvell chip is selling for $5-$6 per unit:

https://www.reuters.com/article/topNews/idUKL0366601520070703?rpc=44

Fog flower Monday, July 16, 2007 at 8:04 AM PT

Hi,

We are researching the Marvell data. Here’s one of the sources: https://chip.seekingalpha.com/article/33926.

Thanks for pointing out the conflicting information.

Regards,
Sramana

Sramana Mitra Tuesday, July 17, 2007 at 11:33 AM PT

[…] helped by its cost-cutting and strong sales of wireless products. Earlier coverage is available here and […]

Marvell’s Price Target Looks Achievable - Sramana Mitra on Strategy Friday, May 30, 2008 at 9:11 AM PT