The phrase, “catching a falling knife” is overused for bear arguments. Whenever a company’s stock price crashes and bargain hunters swoop in for the deals, investing threads are flooded with the adage. Of course, sometimes it’s appropriate, but largely it is a hyperbolic statement. For Marvell Technology Group Ltd. (NASDAQ:MRVL), the pall cast by being associated with the dying PC industry has left the company with a depressed market value that fails to accurately account for the direction of the company. While it may be unfortunate in the short term for the company’s shareholders, Marvell Technology Group Ltd. (NASDAQ:MRVL) presents an attractive buy opportunity for the far-sighted.
A history of doing just fine
Investors and analysts sometimes seem to forget that being a technology company involves a constant cycle of innovation and irrelevance. It’s a fast-moving industry, and the successful players find ways over time of reinventing the company to address current and future trends. The death of the PC is a popular trope these days, and for good reason, but it has dragged down the value and image of perfectly good companies.
Of course, we can point to giants that fell behind in innovation — Microsoft Corporation (NASDAQ:MSFT), Hewlett-Packard Company (NYSE:HPQ), maybe Apple Inc. (NASDAQ:AAPL) in five years. The thing is, it is not inherently bad to have been a major player in a technology that is being eclipsed — as long as you keep moving forward. I believe that is what semiconductor maker Marvell Technology Group Ltd. (NASDAQ:MRVL) is doing, while the market values it as a retiring dinosaur.
This PC-ocalypse has been in the making for at least five years (if not 10). If Marvell was to die with the PC, it would make sense for its long-term earnings growth to decline. But, over the past five years, Marvell has grown roughly 10.6% on an annualized basis. On the ever-important cash-flow front, that five-year number goes to 13.6%. The company continued making money on its product lineup for as long as it could, and now that product cycle is shifting out and making room for the next. This creates a short-term earnings (and price) dip, before the next round begins.
What’s on tap
Admittedly, Marvell is coming off a tough year. On an annual basis, net income took a bath, sinking 50% to just $304 million. The top line wasn’t as devastating, with revenue down just 7% over the prior year. The company ended 2012 with a lawsuit loss to Carnegie Mellon University, which alleged that Marvell infringed upon two of the school’s patents. The judge ordered a $1.1 billion penalty, but analysts are quick to point out that Marvell’s manufacture, distribution, and sale of products in question takes place almost exclusively outside of the United States. Hedge fund guru David Einhorn strongly believes this fee will be reduced substantially, or eliminated all together.