Marvell Technology Group Ltd. (MRVL): This Company Beat Earnings, But Does That Make it a Buy?

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A mixed bag here

Apart from the storage business, networking and mobile & wireless end-markets are the two most important revenue drivers, constituting 24% and 18% of its business, respectively.

Networking has been performing better than expected of late for Marvell, as it declined just 2% in the previous quarter. The company expects a ramp up in production by its customers to benefit this business, which is not surprising as spending on networking infrastructure was expected to increase this year.

Marvell is integrating software solutions to its networking hardware products and this is leading to better customer adoption. The positive vibes in the industry are expected to lead to a sequential growth in the networking business in the ongoing quarter.

Finally, we come to the mobile and wireless business, which I would say is in a soup. Revenue from this segment declined 24% on a sequential basis, but the company says that it has hit bottom. However, considering the stiff competition it faces from various quarters — QUALCOMM, Inc. (NASDAQ:QCOM) and Spreadtrum Communications, Inc (ADR) (NASDAQ:SPRD) in the market for mobile processors, especially in China, and a plethora of players such as Broadcom Corporation (NASDAQ:BRCM) and Skyworks Solutions Inc (NASDAQ:SWKS) in wireless connectivity — I would rather wait for Marvell to show some meaningful improvements in mobile.

The company expects to benefit from the secular trends in this market, but the competition is stiff and from established names. No doubt that Marvell has recorded a design win at a major Tier 1 customer in Asia, probably Samsung, and its innovations in 3G and 4G solutions are notable, but the competition is just too strong right now.

What next?

I’m positive, not entirely bullish, about Marvell’s storage and networking business, but the same can’t be said about mobile. Storage looks like a good long-term play while networking should pick up along with infrastructure spending. The company will have to make some important strides in mobile if it has to make that business relevant.

However, an expensive trailing P/E multiple keeps me from recommending this stock as a buy now, which I’d happily done when it was trading at dirt-cheap levels. For an existing investor, it would make sense to stick to Marvell, but if you’re willing to initiate a new position, a forward P/E of just 12.5 (half the trailing multiple), a debt-free balance sheet, $1.7 billion in cash, a 2.10% dividend yield, and an ongoing repurchase program are some more positives.

The article This Company Beat Earnings, But Does That Make it a Buy? originally appeared on Fool.com and is written by Harsh Chauhan.

Harsh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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