Marvell Stock to Gain from Product Strength
Today’s stock relates to another of our favorite methods of investing in growth stocks, the “picks and shovels” method. Picks and shovels stocks are the best inexpensive way of playing the secular uptrends in technology, without getting exposed to high risk. Such companies supply the raw materials to businesses that are gaining from the rising technology trends of today.
As the demand for cloud computing, bigger storage, high-speed networks, data centers, etc. keeps on increasing, investors in picks and shovels stocks should enjoy superlative returns.
Case in point: Marvell Technology Group Ltd. (NASDAQ:MRVL), a leading global chip maker that has expertise in developing complex system-on-a-chip (SoC) devices, in the areas of analog, mixed-signal, digital signal processing, and embedded integrated circuits.
Marvell has a broad portfolio that includes devices for storage, networking, and connectivity—which power data centers and networks around the world.
The company dominates the market in data storage controller solutions that cover consumer, mobile, desktop and enterprise markets. Its networking products address end markets in cloud, enterprise, small and medium business, and service provider networks. Its connectivity products address end markets in consumer, enterprise, desktop, service provider networks, and automotive.
Despite challenges, the companys growing product strength and performance have been pushing Marvell stock higher.
Over the last few years, Marvell has successfully transitioned from a supplier of stand-alone semiconductor parts to a supplier of fully integrated platform solutions. It was instrumental in revolutionizing the digital storage industry and today, that spirit of innovation remains at the core of the company’s storage, network infrastructure, and wireless connectivity solutions.
With leading intellectual property and deep expertise, Marvell’s semiconductor solutions continue to transform the cloud, enterprise, automotive, industrial, and consumer markets, thereby pushing MRVL stock higher.
And the future looks even better.
As per recent forecasts by World Semiconductor Sales Statistics (WSTS), the world semiconductor market is expected to grow to $409.0 billion in 2017 and $437.0 billion in 2018. For 2017, this represents a growth of 20.6% which is the largest-ever growth recorded since 2010. (Source: “WSTS Semiconductor Market Forecast Autumn 2017,” WSTS GmbH, November 28, 2017.)
Moreover, the global semiconductor market is expected to continue growing through 2018.
The company has turned around well in the last couple of years and it looks like it is in a good position to take advantage of the positive trends in the semiconductor industry.
Last year, Marvell Technology announced the acquisition of Cavium Inc (NASDAQ:CAVM), which builds network processors. Cavium dominates in networking solutions and complements the strength that Marvell has in storage solutions. Besides having a strong product portfolio, the deal would result in considerable cost savings. The transaction is expected to close in the middle of 2018.(Source: “Marvell and Cavium to Combine Creating an Infrastructure Solutions Powerhouse,” Marvell Technology Group Ltd., November 20, 2017.)
The combined product portfolios of the two companies should help Marvell deliver end-to-end solutions for customers in the cloud data, enterprise, and service provider markets. The merger could expand the company’s serviceable addressable market to more than $16.0 billion.
The company is executing its strategy well, and this is evident from its quarterly results. Marvell Technology reported its third-quarter results last November, and they were better than analyst expectations.
The chip maker posted revenue of $616.0 million and adjusted income of $0.34 per diluted share. Marvell CEO Matt Murphy said that the company’s strong performance was driven by growth in its core businesses of storage, networking, and connectivity—and by improved execution across the company.
Marvell stock has been gaining on the back of this optimism. MRVL stock has gained over 150% in the last five years, and it is up by more than 50% over the last year. The following chart shows this phenomenal rise.
Chart courtesy of StockCharts.com
The overall sentiment appears to be positive for this picks and shovels stock, which is preparing itself well for the new challenges and opportunities ahead.
The demand for storage is expected to be strong as enterprises and data centers continue to grow and the connectivity business gains strength from automotive and smart voice-connected devices. Cavium’s networking portfolio should be another big boost for the business. Marvell stock is likely to continue going higher.