Archive: Marvell Technology (MRVL)

The Case for the Semiconductor Rally to Continue

My latest column is up at RealMoney. In it, I explain why I think the recent rally in semiconductor stocks should continue.

First, as I have mentioned before, the supply/demand balance remains favorable.

Second, pricing power appears to be improving, based on the most recent PPI report.

I think the names that will perform best are those whose gross margins are currently depressed, as improving margins would result in accelerating earnings power.

Disclosure: At time of publication, William Trent holds shares of SMH and MXIM, as well as put options against the shares of LRCX.

Disclosure: William Trent has a long position in SMH.

Topics: Altera (ALTR), Cypress Semiconductor (CY), Intel (INTC), Marvell Technology (MRVL), Micron Technology (MU), ProShares Ultra Semiconductors (USD), Semiconductor HOLDRS (SMH), Semiconductors | No Comments

TSM: Taiwan Semi Provides Stable Cash Flow in an Uncertain Environment

The following is a reprint of my January 16, 2007 RealMoney column

In a volatile market, investors tend to gravitate toward companies and investments that provide stability. As crazy as this may sound, I think that stability can be found in a semiconductor company – namely, Taiwan Semiconductor (TSM). I think the table below shows just how stable.

Taiwan Semiconductor Cash Flow Generation ($U.S. Billions)

2004

2005

2006

2007E

Cash flow from operations

$4.79

$4.77

$6.29

$4.85

Capital expenditures

2.54

2.43

2.41

2.60

Free cash flow

2.25

2.34

3.88

2.25

Sources: Taiwan Semiconductor, Yahoo! Finance, William A. Trent estimates

Taiwan Semi operates in an unsexy part of the semiconductor industry known as “foundries.” It sounds as exciting as a blacksmith shop, and that isn’t far from the truth. Foundries don’t design any of the products they manufacture. Instead, they make the chips that other companies design. Their expertise isn’t in technology so much as process and efficiency.

Because they don’t design the chips themselves, Taiwan Semiconductor and other foundries such as United Microelectronics (UMC) typically get lower gross margins. The design profits fall to their customers. TSM’s expertise in manufacturing and economies, however, are much needed by customers who are often too small to absorb the enormous costs of building a chip fabrication plant.

Such customers include many fabless semiconductor companies and systems companies such as Altera (ALTR), Broadcom (BRCM - Annual Report), Marvell (MRVL - Annual Report), nVidia (NVDA), Qualcomm (QCOM) and VIA Technology, as well as integrated device manufacturing companies such as Advanced Micro Devices (AMD - Annual Report), Analog Devices (ADI), Freescale, and Philips (PHG).

Many small customers have given the company a balanced sales base. By end market, 40-45% of sales are communications-related, about 30% are to the computer market, 15-20% go to consumer electronics and the rest serve the memory and industrial markets. In 2006, the largest customer represented 10% of company sales, and the top ten amounted to just over half of sales. The lack of concentrated exposure to any customer or end market is one of the reasons TSM can generate stable cash flows.

The largest customer related risk factor may be that three quarters of sales are to customers in North America, and thus may impact the company if there is a U.S. recession. However, the global end markets for technology suggest that the true end customer is more widely dispersed geographically.

As the cash flow table shows, it seems fairly safe to say TSM will generate about $2.5 billion in cash flow. In some years, such as 2006, the cash flow may be unusually high. But even the industry downturns in 2004 and 2007 did relatively little harm. Given that the current enterprise value for Taiwan Semi is about $42 billion, it is offering a free cash flow yield of just under 6%.

If I had $42 billion that I wanted to invest safely, I might choose between buying TSM outright or investing it all in 5-year U.S. Treasuries. The Treasuries are currently yielding about 3.0%, so I would get $1.25 billion in interest each year from my investment. If that were my choice, I think I would go with the $2.5 billion in cash flow offered by Taiwan Semi.

It’s true that as a small investor owning a portion of TSM I would not be able to access all of the free cash flow. There is some risk to the comparison, since I am hoping the company invests any cash they hold onto wisely. But the company does pay two thirds of the cash flow as a dividend. Unless things change, that is still a 4.0% yield taxed at 15% compared to a 3.0% yield taxed at my marginal income tax rate.

How Bad Can it Get?

As stable as it may appear, I also have to acknowledge that TSM’s cash flow is not guaranteed. However, I think 2007 probably marked a fundamental bottom for the semiconductor industry – or at any rate that things won’t get much worse.

Consider, for example, the pricing environment. The Bureau of Labor Statistics reported that semiconductor prices declined 16.9% in December compared to the year earlier. That number was a modest improvement over November’s decline, which was the worst on record. Even the depths of the Internet bust were better times for semiconductor pricing. The fact that the pricing environment is so extraordinarily bad suggests to me that it probably won’t get too much worse.

Year/Year Change in Semiconductor Prices (PPI Data)

semiconductor-ppi.gif

Source: Bureau of Labor Statistics

Furthermore, as I have written in other columns, I think the turnaround in semiconductor fundamentals is within sight. Pricing is a function of supply and demand, and since March of 2007 demand (semiconductor revenues as reported by the Semiconductor Industry Association) has been growing at a faster rate than supply (bookings for new semiconductor equipment as reported by Semiconductor Equipment and Materials International).

I think the industry’s recent restraint in adding new capacity will soon become evident in stronger pricing even if there is an economic slowdown. If I am right, what already looks like a solid and stable cash flow level could soon look even better.

Disclosure: William Trent has a long position in SMH.

Topics: Advanced Micro Devices (AMD), Altera (ALTR), Analog Devices (ADI), Broadcom (BRCM), Koninklijke Philips Electronics (PHG), Marvell Technology (MRVL), NVIDIA (NVDA), Qualcomm (QCOM), Semiconductors, Stock Market, Taiwan Semiconductor (TSM), United Microelectronics (UMC) | No Comments

The Week Ahead (13 May 2007)

The Earnings Calendar is fairly light.

  • Tuesday’s CPI is estimated at 0.5%, 0.2% ex food and energy.
  • Wednesday’s Housing Starts are expected to come in at a 1.475 million rate.
  • Industrial Production, also on Wednesday, is expected to rise 0.2%.

Earnings season is winding down but there are still a few important reports due.

  • Applied Materials (AMAT - Annual Report) reports on Tuesday and is expected to earn $0.28 on $2.35 billion in sales. I’m stocked up on tequila.
  • BEA Systems (BEAS) reports on Wednesday but has already preannounced. Their guidance for next quarter needs to beat the estimate of $0.14, but investors will probably be disappointed by anything short of a buyout.
  • Hewlett Packard (HPQ - Annual Report) also reports on Wednesday, and preannounced in the other direction. Guidance for next quarter is as close to a lay-up to exceed current estimates (sequential decline and year/year deceleration) as one can typically find.
  • Intuit (INTU) reports on Thursday. Both earnings and guidance are anyone’s guess, but the long and short of it is that we expect tax refunds will be put to work.

There are a few other companies reporting (Autodesk and Marvell among them) in which I am interested but don’t have anything pithy to say about.

Topics: Applied Materials (AMAT), Autodesk (ADSK), BEA Systems (BEAS), Hewlett Packard (HPQ), Intuit (INTU), Marvell Technology (MRVL), Stock Market | 2 Comments

Five Reasons NOT to Buy Semiconductor Stocks Today

Lest you think we were going soft, we hereby balance our earlier enthusiasm for semi stocks with our more customary caution. The five reasons to avoid semiconductor stocks right now include:

  1. The fundamentals will get worse before they get better. While supply indications grew slower than demand in April, the turn followed 16 months of too much capacity being ordered. As that capacity comes on line, the inventory situation will worsen and margins will get hit more. It is not at all certain that estimates reflect this.
  2. It is May. Sure, sell in May and go away is a cliche. Things often become cliches for a reason.
  3. Demand? What demand?
  4. Valuations are too high because investors are hoping for more premium buyouts. They will happen, but not to every name in the sector.
  5. The last bear may no longer be standing.

Food for thought.

Disclosure: William Trent has a long position in SMH.

Topics: AGR, Advanced Micro Devices (AMD), Altera (ALTR), Analog Devices (ADI), Applied Materials (AMAT), Cadence Design Systems (CDNS), Cree (CREE), Elpida (ELPDF.PK), Freescale (FSL), Hynix Semiconductor (HXSCF.PK), Intel (INTC), Intersil (ISIL), KLA-Tencor (KLAC), LSI Corp. (LSI), Lam Research (LRCX), Lattice Semiconductor (LSCC), Linear Technology (LLTC), MEMC Electronic Materials (WFR), Marvell Technology (MRVL), Maxim Integrated Products (MXIM), MicroSemi (MSCC), Micron Technology (MU), NVIDIA (NVDA), National Semiconductor (NSM), ON Semiconductor (ONNN), PowerWave Technologies (PWAV), Qimonda (QI), STMicroelectronics (STM), Samsung Electronics (SSNLF.PK), Sandisk (SNDK), Semiconductor HOLDRS (SMH), Semiconductors, Silicon Laboratories (SLAB), Standard Microsystems (SMSC), Stock Market, Supertex (SUPX), Taiwan Semiconductor (TSM), Texas Instruments (TXN), United Microelectronics (UMC), Winbond Electronics (WBEMF.PK), Xilinx (XLNX) | No Comments

Five Reasons to Buy Semiconductor Stocks Today

A reader complained yesterday that we have been too negative. While we aren’t going to go crazy and have a whole positivity day, we will take the time to outline the bull case for the industry on which we have been most negative: semiconductors.

  1. The bad news is known. When we started harping about oversupply, it was the farthest thing from anyone’s mind. Like Heisenberg’s uncertainty principle, the act of observation can alter the experiment.
  2. The market is ignoring the fundamentals. Related to point 1, the market knows about the bad fundamentals and doesn’t care. Often this means that the bad news is sufficiently well known to be priced in. This is of course the weakest reason, as the market ignored the fundamentals in 2000 as well.
  3. Demand may be ready to pick up. Double-digit growth from a tech distributor for the first time in a long time should not be ignored. The Vista hoopla has passed, now the nuts and bolts work may be beginning.
  4. Supply and demand will soon realign. For the first time since 2005, orders for new equipment grew at a slower rate than semiconductor end demand. The longer this situation continues, the healthier it will be for future industry sales, pricing and profit margins.
  5. The game has changed. Forget private equity buyers. For the first time a semiconductor management team decided it was more important to take capital out of the industry than to add more. This is a sea change in semiconductor management-think, and the strong positive reaction from investors ensures that the wave will continue to build.

There. That wasn’t so hard, was it? Stay tuned for our five reasons NOT to buy semiconductor stocks today.

Disclosure: William Trent has a long position in SMH.

Topics: AGR, Advanced Micro Devices (AMD), Altera (ALTR), Analog Devices (ADI), Applied Materials (AMAT), Cadence Design Systems (CDNS), Cree (CREE), Elpida (ELPDF.PK), Freescale (FSL), Hynix Semiconductor (HXSCF.PK), Intel (INTC), Intersil (ISIL), KLA-Tencor (KLAC), LSI Corp. (LSI), Lam Research (LRCX), Lattice Semiconductor (LSCC), Linear Technology (LLTC), MEMC Electronic Materials (WFR), Marvell Technology (MRVL), Maxim Integrated Products (MXIM), MicroSemi (MSCC), Micron Technology (MU), NVIDIA (NVDA), National Semiconductor (NSM), ON Semiconductor (ONNN), PowerWave Technologies (PWAV), Qimonda (QI), STMicroelectronics (STM), Samsung Electronics (SSNLF.PK), Sandisk (SNDK), Semiconductor HOLDRS (SMH), Semiconductors, Silicon Laboratories (SLAB), Standard Microsystems (SMSC), Stock Market, Supertex (SUPX), Taiwan Semiconductor (TSM), Texas Instruments (TXN), United Microelectronics (UMC), Winbond Electronics (WBEMF.PK), Xilinx (XLNX) | 1 Comment

SMH: Researchers Catching up to Our Early Call on Semis

We have been talking about oversupply of semiconductors for some time. Now, in the last two weeks two research firms have cut forecasts according to Semiconductor Fabtech:

IC Insights has drastically cut its semiconductor growth projections for 2007 citing severe pricing pressures in the NAND flash memory market as well as the continued decline in microprocessor prices. However, the market research firm has added that a major DRAM price collapse has also started and will also affect market growth this year. As a result, the firm has lowered its forecast to 2 percent growth compared to its previous forecast of 7 percent growth for 2007.Only two weeks ago, Semico Research lowered its semiconductor forecast for the second time this year citing poor prices even though unit demand remained strong, and now projects only 1.8 percent growth for 2007. In March, Semico had projected growth of 5.8 percent compared to a projection at the beginning of the year that the semiconductor industry would grow by 7 percent.

While everyone plays catchup we will refer you back to our October 2006 comments, which have not needed any revisions:

The chart below shows the year/year growth rate in semiconductor sales for each month going back to 1998. Data is courtesy of the Semiconductor Industry Association (SIA).

This tells us a few things:

  • The semiconductor sales growth rate has been more consistent since 2005 (in the mid-high single digits.)
  • The forecast calls for that to essentially continue for two more years.
  • The chart tells us that is pretty dadgum unlikely.

Sales growth is likely to be either much higher or much lower than 8.6% next year. The million dollar question (or however much you may have at stake – for us it’s more like a couple thousand) is which direction. We’re betting it is lower.

For one thing, this is the longest the semi industry has ever gone without a year/year decline. By itself that doesn’t mean much – due to the fabless/foundry model and general tech industry maturity sales growth should be less volatile.

However, when you combine low volatility in sales growth with huge orders for new manufacturing equipment you end up with oversupply. Oversupply in a cyclical industry means sharper than normal price reductions. If the prices fall faster than unit demand rises – you get a decline in sales.

The other reason we expect semiconductor sales to be less than the industry predicts next year is summed up in the following chart, which tracks the total sales (rather than growth) over the preceding twelve months. There has been a definite change in the overall growth rate, going back to about 1995 or 1996, depending on where you want to draw the lines. For simplicity, we’ll just use the last 10 years (September 1996 – August 2006). Over that time frame, the average growth rate has been 6.3%. However, it is easy to see that that rate is toward the top of the new range (the trendline represents resistance in this case.)

So, given overcapacity, volatility and resistance we think 8.6% growth in 2007 is on the optimistic side. Perhaps even the wildly optimistic side.

We’ll have to wait and see how much of a shakeup there is in 2007 before we’d be willing to comment on 2008.

Disclosure: William Trent has a long position in SMH.

Topics: AGR, Advanced Micro Devices (AMD), Altera (ALTR), Analog Devices (ADI), Applied Materials (AMAT), Cadence Design Systems (CDNS), Cree (CREE), Elpida (ELPDF.PK), Freescale (FSL), Hynix Semiconductor (HXSCF.PK), Intel (INTC), Intersil (ISIL), KLA-Tencor (KLAC), LSI Corp. (LSI), Lam Research (LRCX), Lattice Semiconductor (LSCC), Linear Technology (LLTC), MEMC Electronic Materials (WFR), Marvell Technology (MRVL), Maxim Integrated Products (MXIM), MicroSemi (MSCC), Micron Technology (MU), NVIDIA (NVDA), National Semiconductor (NSM), ON Semiconductor (ONNN), PowerWave Technologies (PWAV), Qimonda (QI), STMicroelectronics (STM), Samsung Electronics (SSNLF.PK), Sandisk (SNDK), Semiconductor HOLDRS (SMH), Semiconductors, Silicon Laboratories (SLAB), Standard Microsystems (SMSC), Stock Market, Supertex (SUPX), Taiwan Semiconductor (TSM), Texas Instruments (TXN), United Microelectronics (UMC), Winbond Electronics (WBEMF.PK), Xilinx (XLNX) | 3 Comments

SMH: Did a Data Error Mislead Us About the Extent of Semiconductor Oversupply?

When Semiconductor Equipment and Materials International (SEMI), the industry trade organization for semiconductor equipment makers, reported the January book to bill ratio for chip equipment, we were concerned.

Unfortunately, just when it looked as if things might be set to turn the semiconductor companies re-accelerated their pace of equipment orders over the last two months.

Until orders for semiconductor equipment start growing at less than the roughly 10% growth in demand for semis, there will continue to be the brutal pricing environment we have seen recently. The decent guidance and calling of bottoms are pipe dreams.

But now it appears there could be another reason for the datapoint we found so strange. According to Reuters.com:

Global sales of microchip-making equipment in February rose 16.6 percent from a year earlier on demand for tools to make and process silicon wafers, an industry group in Japan said on Friday.Sales of gear used to make semiconductors rose to $2.72 billion in February, the Semiconductor Equipment Association of Japan (SEAJ) said.

The group also restated sales figures for January, saying sales rose 17.2 percent year-on-year to $3.49 billion, instead of a previously stated rise of 34.5 percent to $4.01 billion.

A member of Semiconductor Equipment and Materials International, a California-based industry group, had given the wrong sales numbers, the SEAJ said in a statement.

Then SEMI reported adjusted figures. Here is what the numbers looked like in February as originally reported:

And here is the new and improved data:

semisupply.jpg

The March numbers will be reported Thursday. Given that the supply/demand imbalance is the main contributor to our bearishness, a continuation in this trend would mean we are much closer to adopting a neutral/bullish outlook for semis. We can’t wait for Thursday’s release to find out.

Disclosure: William Trent has a long position in SMH.

Topics: AGR, Advanced Micro Devices (AMD), Altera (ALTR), Analog Devices (ADI), Applied Materials (AMAT), Cadence Design Systems (CDNS), Cree (CREE), Elpida (ELPDF.PK), Freescale (FSL), Hynix Semiconductor (HXSCF.PK), Intel (INTC), Intersil (ISIL), LSI Corp. (LSI), Lam Research (LRCX), Lattice Semiconductor (LSCC), Linear Technology (LLTC), MEMC Electronic Materials (WFR), Marvell Technology (MRVL), Maxim Integrated Products (MXIM), MicroSemi (MSCC), Micron Technology (MU), NVIDIA (NVDA), National Semiconductor (NSM), ON Semiconductor (ONNN), PowerWave Technologies (PWAV), Qimonda (QI), STMicroelectronics (STM), Samsung Electronics (SSNLF.PK), Sandisk (SNDK), Semiconductor HOLDRS (SMH), Semiconductors, Silicon Laboratories (SLAB), Standard Microsystems (SMSC), Stock Market, Supertex (SUPX), Taiwan Semiconductor (TSM), Texas Instruments (TXN), United Microelectronics (UMC), Winbond Electronics (WBEMF.PK), Xilinx (XLNX) | 2 Comments

Semis: Does This Look Like a Bottom to You?

Having given you our take on the semiconductor sales data yesterday, We had to laugh when we saw this article from Tech Trader Daily – Semis: Feb Sales Data Look Weak; Are We Nearing A Bottom?

The Street this morning agrees on the obvious conclusion of the latest SIA data: it was weak. “Weak February results,” “shipments weaker than typical,” “weakness in both units and pricing,” “data appears generally weak,” “weaker than normal seasonality,” said analysts this morning at J.P. Morgan, Wedbush Morgan, Robert W. Baird, Lehman Brothers and UBS, respectively.But there is also a growing consensus that we are at or near a bottom in semi fundamentals, and that a recovery is just around the corner; it is a theory tied to the notion that the recent inventory correction in the sector is nearly completed.

Oh, really? Here’s a chart we’d like the analysts Eric quoted to look at, which is a total semiconductor sales on a trailing 12-month basis since 1995, based on data from the Semiconductor Industry Association:

semiconductorsales.jpg

So, Christopher Danely, analyst at J.P. Morgan, Craig Berger, of Wedbush Morgan, Lehman’s Tim Luke, and Uche Orji, of UBS: Can you tell me why this looks like a bottom to you?

Disclosure: William Trent has a long position in SMH.

Topics: AGR, Advanced Micro Devices (AMD), Altera (ALTR), Analog Devices (ADI), Applied Materials (AMAT), Cadence Design Systems (CDNS), Cree (CREE), Freescale (FSL), Intel (INTC), Intersil (ISIL), KLA-Tencor (KLAC), LSI Corp. (LSI), Lam Research (LRCX), Lattice Semiconductor (LSCC), Linear Technology (LLTC), MEMC Electronic Materials (WFR), Marvell Technology (MRVL), Maxim Integrated Products (MXIM), MicroSemi (MSCC), Micron Technology (MU), NVIDIA (NVDA), National Semiconductor (NSM), ON Semiconductor (ONNN), PowerWave Technologies (PWAV), STMicroelectronics (STM), Sandisk (SNDK), Semiconductor HOLDRS (SMH), Semiconductors, Silicon Laboratories (SLAB), Standard Microsystems (SMSC), Stock Market, Supertex (SUPX), Taiwan Semiconductor (TSM), Texas Instruments (TXN), United Microelectronics (UMC), Xilinx (XLNX) | 1 Comment

Chip Supply Issues Now Hurting Demand

The Semiconductor Industry Association released global semiconductor sales data for the month of February, 2007, and it did not look good.

Worldwide sales of semiconductors of $20.09 billion in February were 6.5 percent lower than January when sales were $21.48 billion, the Semiconductor Industry Association (SIA) reported today. February sales increased by 4.2 percent from the $19.28 billion recorded in February 2006.“While seasonality clearly contributed to the 6.5 percent decline in worldwide chip sales month-on-month, declining unit shipments and lower average selling prices (ASPs) in several key market segments were a factor,” said SIA President George Scalise. “Both unit shipments and total sales of microprocessors and DSP chips experienced sequential declines in February. Unit shipments of NAND flash increased sequentially while total sales saw a double-digit decline, indicating very competitive market conditions.”

It reminds us of something we said in February:  Although end demand for semiconductors has experienced fairly steady growth, excess supply has sometimes caused inventory to grow to unsustainable levels. For example, “by 2000 most of the capacity was in place, churning out chips. Since end demand was growing at a slower pace, inventory built up. The falloff in 2001 wasn’t so much a drop in demand, but the fact that the demand could be filled from that existing inventory.” We even backed it up with this chart:

We followed up last week, saying “Next we turn to capacity utilization, which has clearly started to fall. Excess capacity means the potential for even more inventory to be produced, which tends to put downward pressure on prices. Since the majority of semiconductor manufacturing costs are fixed, low utilization means lower profits – either because prices have to be reduced or because the per-unit costs are higher when production is cut.” It sounds very similar to what Scalise described in today’s SIA press release:

“Year-on-year, we see evidence of the fiercely competitive market conditions – across the board unit sales in key products increased, while ASPs declined. Unit sales of microprocessors were up almost 8 percent while ASPs declined 15 percent, and NAND flash units grew by over 40 percent while experiencing a nearly 50 percent drop in ASPs. These products tend to be indicators of conditions in important end markets such as personal computers and consumer devices,” Scalise continued. “Personal computers and consumer products now account for approximately 60 percent of semiconductor sales. Both competitive conditions and product mix issues appear to be affecting revenues of these key components.”

SIA noted that overall capacity utilization declined from 88.9 percent in the third quarter of 2006 to 86.8 percent in the fourth quarter. Most of the decline was in foundry utilization, which fell from 91.5 percent in the third quarter to 80.9 percent in the fourth quarter. The reduction in capacity utilization in the fourth quarter addressed inventory builds in the semiconductor supply chain and selected end markets which are expected to show growth consistent with GDP performance in key world markets in the coming months.

The problem for us is, we don’t see the reduction in capacity utilization as having “addressed inventory builds.” Rather, we see it as the logical conclusion of excess capacity expansion that has built up now for more than a year:

At the time, we said:

The good thing about the downward revision, and also the decline in February, is that it restores some balance to at least the trend in equipment orders relative to end demand for semiconductors. Although supply (chip equipment orders) is still growing much faster than the roughly 10% growth in semiconductor demand, at least the rate at which the capacity is growing is starting to slow down again. Furthermore, the billings (which represent what is actually installed rather than orders, which may prove too optimistic) have been running at a slower rate than orders. The 22% growth of installed equipment is still well higher than what is needed, but has less far to fall.

Unfortunately, today’s release also blows a hole in any hopes we had that slowing orders would restore balance. Since we measure the imbalance as the differential between dollar capacity growth and dollar sales growth, the slowdown in semi demand to 4% year/year from “roughly 10%” means that February’s decline in chip orders did not improve the potential supply imbalance. Things have farther to fall than we thought.

Disclosure: William Trent has a long position in SMH.

Topics: AGR, Advanced Micro Devices (AMD), Altera (ALTR), Analog Devices (ADI), Applied Materials (AMAT), Cadence Design Systems (CDNS), Cree (CREE), Freescale (FSL), Intel (INTC), Intersil (ISIL), KLA-Tencor (KLAC), LSI Corp. (LSI), Lam Research (LRCX), Lattice Semiconductor (LSCC), Linear Technology (LLTC), MEMC Electronic Materials (WFR), Marvell Technology (MRVL), Maxim Integrated Products (MXIM), MicroSemi (MSCC), Micron Technology (MU), NVIDIA (NVDA), National Semiconductor (NSM), ON Semiconductor (ONNN), PowerWave Technologies (PWAV), STMicroelectronics (STM), Sandisk (SNDK), Semiconductor HOLDRS (SMH), Semiconductors, Silicon Laboratories (SLAB), Standard Microsystems (SMSC), Stock Market, Supertex (SUPX), Taiwan Semiconductor (TSM), Texas Instruments (TXN), United Microelectronics (UMC), Xilinx (XLNX) | 3 Comments

MRVL: Marvell Technology Investors Believe No News is Good News

If ever there was an earnings report to prove the “no news is good news” thesis it Marvell Technology Group Ltd. (MRVL) Reports Preliminary Revenue for Fourth Quarter and Full Fiscal 2007: Financial News – Yahoo! Finance, which sent the shares up more than five percent in after-hours trading:

Net revenue for the fourth quarter of fiscal 2007 was $622.0 million, an increase of 27% over net revenue of $489.0 million for the fourth quarter of fiscal 2006 and a 20% sequential increase from net revenue of $520.4 million for the third quarter of fiscal 2007. Net revenue for fiscal 2007 was $2,237.6 million, an increase of 34% over net revenue of $1,670.3 million in fiscal 2006.All results reported are preliminary because Marvell is in the midst of a previously announced internal review by a special committee of its Board of Directors relating to the Company’s historical stock option practices and related accounting matters.

And that was pretty much it. Due to the aforementioned accounting matters, there were no financial statements presented, leaving investors with the April 2006 balance sheet as the most recent. There was no accounting for operating income, expenses or net income. There was no disclosure of inventory levels, though there would be nothing much to which to compare them had there been one.

The one financial statistic reported was not enough to send the shares soaring. Revenue estimates were for $625 million, so the $622 was a little low. On the conference call, according to MarketWatch, “For the current business period, Marvell Tech forecast total sales in the range of $640 million to $650 million, a bit softer than Wall Street’s expectations of $651.4 million.” Perhaps investors felt it was close enough for government work?

But we jest. In reality, the key comment from Marvel was this one (source: the MarketWatch article):

Marvell Tech said inventory levels at its data-storage customers stabilized during the quarter. It added that its inventories should be back at normal levels by April.

We don’t know how they deduce this, nor whether the channel inventories so mentioned will have any bearing on Marvel’s own inventory levels and sales potential. But the mere hint that inventories are being reduced, despite the fact that all signs suggest otherwise, was enough to spark a rally. At least for one night.

Topics: Marvell Technology (MRVL), Semiconductor HOLDRS (SMH), Semiconductors, Stock Market | No Comments