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Marvell Technology Group Ltd. (MRVL): Why This Stock Is Not Out of Favor

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Marvell Technology (MRVL)Despite declining revenue, Marvell Technology Group Ltd. (NASDAQ:MRVL) remains a solid investment target to ride cloud storage and LTE trends.With a diversified product portfolio ranging from mobile communications to data storage, cloud infrastructure, and networking, Marvell provides complete solutions to enable the digital connected lifestyle. With continuous adoption toward more digital connected lifestyle and increasing mobile demand, Marvell Technology Group Ltd. (NASDAQ:MRVL) is poised for more growth.

Declining revenue but better-than-expected results

For Q1 2014, Marvell Technology Group Ltd. (NASDAQ:MRVL) reported better-than-expected earnings of $0.19 per share, beating analysts’ estimate of $0.14 per share. The revenue of $734 million also beat the estimate; however, it declined 24% sequentially. Overall, Marvell witnessed better demand in its Storage and Networking segment while Mobile and Wireless was below management’s expectation. Nonetheless, management believes Q1 was the trough for the Mobile segment. Marvell continues to make solid progress in its Mobile segment at multiple Tier 1 OEMs with its integrated 3G and 4G platforms.

Margins and balance sheet

Non-GAAP gross margin was 54.6% and operating margin was 12% in Q1. Marvell Technology Group Ltd. (NASDAQ:MRVL) had cash and equivalents of $1.7 billion at the end of Q1, down $186 million sequentially. The company repurchased around $200 million worth of shares and returned about $30 million in Q1. About 29% of its total shares have been repurchased and retired in the past 11 quarters.

Outlook

Management expects the Storage segment to be roughly flat with double-digit growth in SSDs for Q2, offset by a slight decline in HDDs. As for the Connectivity segment, management expects solid year-over-year growth in fiscal 2014. The Mobile and Wireless segment is expected to grow in double-digits sequentially for Q2, whereas the Networking segment is estimated to grow in the low to mid-single digits sequentially. Overall, revenue is projected to be $770 to $810 million for Q2.

Product development and five-mode LTE Solution

Management continues to invest steadily in advanced storage technologies as it believes that storage needs for consumers and enterprises will continue to grow.

Marvell Technology Group Ltd. (NASDAQ:MRVL) continues to make strong progress in LTE. Earlier, a fully integrated, quad-core 5-mode Cat 4 LTE solution, specifically targeted for the mainstream 4G market was announced. Marvell’s new PXA1088 LTE is the industry’s first mass market quad-core 5-mode Category 4 LTE single-chip solution, supporting LTE TDD and FDD with several key features, including doubling the graphics performance compared to the 3G solution and supporting voice over LTE.

This technology is field proven and certified by major global operators, such as China Mobile Ltd. (ADR) (NYSE:CHL). China Mobile Ltd. (ADR) (NYSE:CHL) continues to invest heavily into 4G TD-LTE and will be inviting around 5,000 users to start testing the TD-LTE service in Shanghai in June. China Mobile Ltd. (ADR) (NYSE:CHL) is also rumored to launch its 4G network nationwide later this year if everything goes smoothly.

Marvell supports TDD-LTE, FDD-LTE, WCDMA, TD-SCDMA, and GPRS 2G and is confident to win the multi-mode LTE battle because it has both a mature five-mode LTE modem and a mature apps processor. The five-mode LTE chip is a device that not only works in China, but also in North America and Europe. Marvell Technology Group Ltd. (NASDAQ:MRVL)’s differentiation lies in its strength in the international market and being one of the leading LTE chipset companies.

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