5 Reasons to Love Marvell

 

 

Some company names seem based on a true story. Case in point: Marvell Technology Group (Nasdaq: MRVL).

Marvell's second quarter was indeed a marvel. Sales jumped 23% from last quarter but fell 24% year over year for a total of $641 million. GAAP earnings landed at $0.09 per share -- down from $0.11 per share a year ago but way better than last quarter's $0.18 loss per share.

So far, so blah, right? But Marvell's cash flow and gross margin performances shine a whole new light on the situation: The GAAP gross margin widened from 51.8% last year to 55% this time. If Marvell can keep this pricing power while re-growing sales, the bottom line will multiply like an unsupervised rabbit colony. And I see no reason why Marvell would give up its grossly profitable new habit, now that the company has gotten a taste of it.

And Marvell's free cash flow increased 6% over last year's pre-crash period to $182.3 million. For those of you playing along at home, that's a 27.4% FCF margin, and represents an astonishing 26% sequential increase. The new level makes Marvell a more efficient cash machine than proven cash kings like Cisco Systems (Nasdaq: CSCO) and Microsoft (Nasdaq: MSFT), and within shouting distance of Apple (Nasdaq: AAPL) and Google (Nasdaq: GOOG). This achievement is particularly impressive when you consider that some of these cash-generating machines are software companies or Internet services, with low overhead and manufacturing costs.

And Marvell isn't done yet. The company has a finger in lots of tasty pies:

• Marvell is a leader in solid-state drive controllers and will benefit as that nascent market matures.
• The SheevaPlug AC-adapter-sized computer platform promises to open whole new markets in media servers, storage networks, and other new, cheap, exciting technologies for the modern home. Marvell management can't disclose any partners yet, but OEM developer interest is "expanding at a viral rate." That's a term normally reserved for YouTube videos of dancing cats.
• Wireless networking continues to explode, now in sectors like wireless printers and enterprise networks, and Marvell can sling an 802.11n networking chip just as well as Atheros (Nasdaq: ATHR) or Broadcom (Nasdaq: BRCM).

If only one of these markets lives up to its promise, Marvell should do fine. And all three look ready to emerge.

Three markets and two stellar metrics make five good reasons to love Marvell. This is a respectable four-star CAPS stock, but I think it deserves a fifth star to match those opportunities. Send an "outperform" rating Marvell's way today, and justice will be done. Or give Marvell a thumbs-down rating if you think I'm wrong.