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Price Objective
Marvell Technology Group Ltd. Change NEUTRAL
Equity | United States | Semiconductors
17 August 2012
Margins at three-year low,
lacks catalysts, PO to $13
Vivek Arya +1 646 855 1755
Research Analyst
MLPF&S
Miss and guide down on broad based weakness vivek.arya@baml.com
Marvell's JulQ results and OctQ guidance for sales, gross margins and EPS came Aashish Rao +1 646 855 4280
in well below expectations as both mobile/wireless and storage sales missed. Research Analyst
MLPF&S
Marvell's competitive position and growth prospects in mobile & wireless remains aashish.rao@baml.com
weak as China TD market has failed to take-off and business remains subscale -- Anne Edelstein +1 646 743 0170
OctQ mobile sales guidance is 40% below prior peak. Marvell's mobile HDD Research Analyst
position remains fairly solid but the growth outlook for the PC/HDD industry MLPF&S
anne.edelstein@baml.com
remains subdued. We materially lower our FY13/14 EPS estimates to $0.98/$1.00
from $1.22/$1.45 and PO to $13 (from $15) on 13x CY13 PE but maintain Neutral
on strong balance sheet (cash is 31% of market cap) and cash flow.
Stock Data
What we like: new storage products, cash flow Price US$12.28
Marvell is the market leader (60-65% share) in HDD controllers and it continues to Price Objective US$13.00
Date Established 17-Aug-2012
be successful with 500GB mobile products which grew 30% QoQ to a 10% of
Investment Opinion C-2-7
overall sales. Marvell also noted that it’s well positioned with HDD/SSD hybrid Volatility Risk HIGH
drives and thinner 7mm/5mm drives on upcoming Ultrabooks. SSDs grew 25% in 52-Week Range US$10.27-16.86
2Q and are expected to grow 25% again in 3Q. Marvell paid its first quarterly Mrkt Val / Shares Out (mn) US$6,960 / 566.8
dividend of 6c (2% current yield) and has a consistent buyback history with 19% BofAML Ticker / Exchange MRVL / NAS
Bloomberg / Reuters MRVL US / MRVL.OQ
of shares repurchased over last two years.
ROE (2013E) 11.7%
Total Dbt to Cap (Jan-2011A) 0%
What we dislike: gross margins, China TD outlook Est. 5-Yr EPS / DPS Growth 10.0% / NA
Marvell’s 2Q gross margins of 53.6% fell 90bp shy of guidance and are 600bp shy
of its 2010 levels. Marvell expects to get back to its 55-57% target, however both Key Changes
the timing and drivers of the step-up remain unclear. In mobile, China TD sales (US$) Previous Current
outlook was lowered and local vendors Spreadtrum and MediaTek were pricing Price Obj. 15.00 13.00
aggressively to gain share further pressuring margins. Marvell now expects soft 2013E Rev (m) 3,573.2 3,287.4
China TD trends for the next 2-3 quarters. We would note that any launch of a TD 2014E Rev (m) 3,902.3 3,418.8
2015E Rev (m) 4,111.3 3,579.3
iPhone could further pressure Marvell's growth outlook.
2013E EPS 1.22 0.98
2014E EPS 1.45 1.00
Estimates (Jan) 2015E EPS 1.51 1.01
(US$) 2011A 2012A 2013E 2014E 2015E
EPS 1.64 1.27 0.98 1.00 1.01
GAAP EPS 1.64 1.27 0.99 1.01 0.66
EPS Change (YoY) 65.7% -22.6% -22.8% 2.0% 1.0%
Consensus EPS (Bloomberg) 1.11 1.33 NA
DPS 0 0 0.18 0.28 0.32
Valuation (Jan)
2011A 2012A 2013E 2014E 2015E
P/E 7.5x 9.7x 12.5x 12.3x 12.2x
GAAP P/E 7.5x 9.7x 12.4x 12.2x 18.6x
Dividend Yield 0% 0% 1.5% 2.3% 2.6%
EV / EBITDA* 3.3x 4.6x 6.2x 6.3x 6.2x
Free Cash Flow Yield* 15.9% 9.8% 9.0% 7.3% 7.1%
* For full definitions of iQmethod SM measures, see page 10.
BofA Merrill Lynch does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm
c58da9b710df662c
may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their
investment decision.
Refer to important disclosures on page 11 to 13. Analyst Certification on Page 9. Price Objective Basis/Risk on page 9. Link to Definitions on page 9.11196171
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Marvell Te chno lo gy Group Ltd.
1 7 Au gus t 20 12
iQprofile Marvell Technology Group Ltd.
SM
iQmethod SM – Bus Performance* Company Description
(US$ Millions) 2011A 2012A 2013E 2014E 2015E Marvell is a fabless supplier of mixed signal and
Return on Capital Employed 19.6% 13.2% 10.2% 10.3% 10.1% analog semiconductor products to a number of
Return on Equity 20.2% 15.9% 11.7% 11.4% 11.3% storage, computing, and communication
Operating Margin 25.0% 17.8% 11.5% 10.8% 10.5% applications including hard disk drives, personal
Free Cash Flow 1,103 682 627 511 497 computers, servers, Ethernet switches, printers, and
cellular handsets.
iQmethod SM – Quality of Earnings* Investment Thesis
(US$ Millions) 2011A 2012A 2013E 2014E 2015E We are Neutral on Marvell stock on its high
Cash Realization Ratio 1.1x 1.0x 1.2x 1.0x 1.0x exposure to a maturing PC hard disk drive market
Asset Replacement Ratio 1.0x 1.0x 1.4x 2.6x 2.5x
and margin pressure as mix shifts to mobile sales.
Tax Rate 0.6% 0.5% 1.3% 1.3% 1.3%
However the lean channels could help demand
Net Debt-to-Equity Ratio -33.4% -15.7% -20.6% -23.0% -24.5%
Interest Cover NA NA NA NA NA recover near-term while a strong balance sheet
could stimulate share buybacks and support the
stock.
Income Statement Data (Jan)
(US$ Millions) 2011A 2012A 2013E 2014E 2015E
Sales 3,612 3,393 3,287 3,419 3,579 Stock Data
% Change 28.6% -6.1% -3.1% 4.0% 4.7% Average Daily Volume 10,014,250
Gross Profit 2,139 1,927 1,757 1,829 1,916
% Change 35.3% -9.9% -8.8% 4.1% 4.7% Quarterly Earnings Estimates
EBITDA 1,283 922 688 676 689 2012 2013
% Change 48.0% -28.2% -25.3% -1.8% 2.0% Q1 0.29A 0.23A
Net Interest & Other Income 9 15 11 12 12 Q2 0.38A 0.24A
Net Income (Adjusted) 1,114 795 574 578 588 Q3 0.40A 0.24E
% Change 71.7% -28.6% -27.8% 0.6% 1.8% Q4 0.21A 0.26E
Free Cash Flow Data (Jan)
(US$ Millions) 2011A 2012A 2013E 2014E 2015E
Net Income from Cont Operations (GAAP) 1,114 795 574 578 588
Depreciation & Amortization 173 138 117 102 105
Change in Working Capital (11) (117) 82 (1) (24)
Deferred Taxation Charge 4 0 0 0 0
Other Adjustments, Net (86) (45) (67) (79) (79)
Capital Expenditure (90) (89) (79) (89) (93)
Free Cash Flow 1,103 682 627 511 497
% Change 43.0% -38.1% -8.1% -18.5% -2.7%
Balance Sheet Data (Jan)
(US$ Millions) 2011A 2012A 2013E 2014E 2015E
Cash & Equivalents 1,847 785 1,008 1,162 1,279
Trade Receivables 459 407 411 431 458
Other Current Assets 1,406 1,887 1,608 1,605 1,625
Property, Plant & Equipment 358 384 394 401 408
Other Non-Current Assets 2,267 2,305 2,274 2,274 2,274
Total Assets 6,338 5,768 5,694 5,872 6,044
Short-Term Debt 1 0 0 0 0
Other Current Liabilities 640 590 639 655 678
Long-Term Debt 0 0 0 0 0
Other Non-Current Liabilities 176 164 155 155 155
Total Liabilities 816 754 794 810 833
Total Equity 5,522 5,014 4,900 5,062 5,210
Total Equity & Liabilities 6,338 5,768 5,694 5,872 6,044
* For full definitions of iQmethod SM measures, see page 10.
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Marvell Te chno lo gy Group Ltd.
1 7 Au gus t 20 12
Summary of model changes
Table 1: We lower FY13/14 sales to $3,287mn/$3,419mn from $3,573mn/$3,902mn and lower FY13/14 EPS to $0.98/$1.00 from $1.22/$1.45.
Sales ($mn) Pro-forma EPS
Old NEW delta Old NEW delta
Apr-12 $796 $796 $0 $0.23 $0.23 $0.00
Jul-12 $869 $816 ($53) $0.28 $0.24 ($0.04)
Oct-12E $938 $825 ($113) $0.34 $0.24 ($0.10)
Jan-13E $970 $850 ($120) $0.37 $0.26 ($0.11)
FY13E (Jan-13) $3,573 $3,287 ($286) $1.22 $0.98 ($0.24)
YoY % 5.3% -3.1% -3.9% -23.0%
Apr-13E $909 $803 ($106) $0.30 $0.21 ($0.09)
Jul-13E $954 $839 ($115) $0.34 $0.24 ($0.11)
Oct-13E $1,015 $885 ($130) $0.40 $0.28 ($0.12)
Jan-14E $1,025 $892 ($133) $0.40 $0.28 ($0.13)
FY14E (Jan-14) $3,902 $3,419 ($483) $1.45 $1.00 ($0.45)
YoY % 9.2% 4.0% 18.6% 2.0%
Source: Company Data, BofA Merrill Lynch Global Research Estimates
2FQ13 actual v. estimates
Table 2: 2FQ13 sales were +2.5% to $816mn, well below BofAML/Street on weakness in storage and mobile; GMs were -70bps below Street and EPS
missed by 3c.
Jul-11 Apr-12 Jul-12
Guidance Cons BofAML Reported Delta QoQ YoY
Sales ($mn) $898 $796 $840-$890 $852 $869 $816 -6.1% 2.5% -9.1%
QoQ% 11.9% 7.2% +6% to +12% 6.9% 9.1% 2.5%
Storage 440 358 up 10-15% 403 383 -4.9% 7% -13%
Mobile & Wireless 238 228 up 7-10% 246 216 -12.0% -5% -9%
Networking 177 172 up 4-6% 181 179 -1.0% 4% 1%
Other 44 38 39 38
Gross Margin % 58.1% 54.5% ~54.5% 54.3% 54.5% 53.6% -0.9% -1.0% -4.5%
Gross Profit 521 434 473 437 -7.7% 0.7% -16.2%
R&D 227 238 245 245 241 -1.5% 1.2% 6.1%
SG&A 57 58 60 60 57 -5.7% -1.9% -1.2%
Opex Total 285 296 305 298 -2.3% 0.6% 4.6%
Operating Income 237 138 155 168 139 -17.3% 0.9% -41.2%
Operating Margin % 26.4% 17.3% 18.2% 19.4% 17.1% -2.3% -0.3% -9.3%
Financial Income 2 1 2 2 6
Pretax Income 239 139 170 145 -14.9% 4.3% -39.2%
Tax expense 4 0 2 2 3 65.2%
Net Income 234 139 169 142 -15.8% 2.4% -39.4%
Diluted EPS (pf) $0.38 $0.23 $0.26-$0.30 $0.27 $0.28 $0.24 -13.5% 5.7% -35.5%
Diluted Shares 625 606 602 602 587 -2.6% -3.1% -6.1%
Source: Bloomberg, Company Data, BofA Merrill Lynch Global Research Estimates
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Marvell Te chno lo gy Group Ltd.
1 7 Au gus t 20 12
3FQ13 guidance v. expectations
Table 3: 3FQ13 was guided -2% to +4% at $800 to $850mn, below seasonal, on weaker than expected mobile, and storage. GM was guided flat at 53.5%
and EPS was guided well below BofAML/Street to $0.24
Jul-12 Oct-12E
Prior BofAML Consensus New Guidance New BofAML
Sales ($mn) $816 $938 $913 $800-$850 $825
QoQ% 2.5% 8.0% 5.1% -2% to +4% 1.1%
Storage 383 443 up 2-4% 396
Mobile & Wireless 216 265 down 4-6% 208
Networking 179 188 up 2-4% 185
Other 38 41 37
Gross Margin % 53.6% 55.0% 54.8% 53.5% 53.5%
Gross Profit 437 516 441
R&D 241 250 $245 245
SG&A 57 61 $55 55
Opex Total 298 311 $300 300
Operating Income 139 205 190 141
Operating Margin % 17.1% 21.8% 20.8% 17% 17.1%
Financial Income 6 2 $2mn 2
Pretax Income 145 207 143
Tax expense 3 2 $2mn 2
Net Income 142 204 141
Diluted EPS (pf) $0.24 $0.34 $0.32 $0.24 $0.24
Diluted Shares 587 602 580 580
Source: Bloomberg, Company Data, BofA Merrill Lynch Global Research Estimates
Balance sheet, cash flow snapshot
Table 4: Total cash was down -3.3% QoQ; Inventory was down on a $ and days basis.
(FY year end Jan) 2Q12 3Q12 4Q12 1Q13 2Q13
Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 QoQ YoY
Total Cash $2,426 $2,448 $2,270 $2,226 $2,152 -3.3% -11.3%
Short-term debt $0 $0 $0 $0 $0
Long-term debt $0 $0 $0 $0 $0
Total debt $0 $0 $0 $0 $0
Net Cash $2,426 $2,448 $2,270 $2,226 $2,152 -3.3% -11.3%
Net Cash/dil. share $3.89 $3.99 $3.79 $3.74 $3.77 0.8% -3.1%
DSO 41.1 43.2 49.9 47.7 43.6
DPO 85.2 78.5 81.3 80.3 79.9
Inventory ($) $322 $310 $354 $353 $346 -2.2% 7.4%
Inv Turns 4.7 5.3 3.9 4.1 4.4
Inv Days 77.7 68.6 94.7 88.0 82.6 (5.4) 4.9
Cash Conversion 33.7 33.3 63.3 55.4 46.3
Cash Flow from Ops $263 $262 $69 $199 $189 -4.8% -28.2%
Capex ($25.2) ($20.1) ($26.4) ($18.9) ($10.8)
Free cash flow $235 $239 $38 $178 $174 -2.1% -25.9%
Source: Company Data, BofA Merrill Lynch Global Research Estimates
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Table 5: Marvell - Income Statement
1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13E 4Q13E 1Q14E 2Q14E 3Q14E 4Q14E FY11 FY12 FY13E FY14E FY15E
Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12E Jan-13E Apr-13E Jul-13E Oct-13E Jan-14E Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
Net revenue $802.4 $897.5 $950.4 $742.7 $796.4 $816.1 $825.0 $850.0 $802.6 $839.0 $885.2 $892.1 $3,611.9 $3,393.0 $3,287.4 $3,418.8 $3,579.3
QoQ -10.9% 11.9% 5.9% -21.9% 7.2% 2.5% 1.1% 3.0% -5.6% 4.5% 5.5% 0.8%
YoY -6.2% 0.1% -0.9% -17.5% -0.8% -9.1% -13.2% 14.4% 0.8% 2.8% 7.3% 4.9% 28.6% -6.1% -3.1% 4.0% 4.7%
Cost of goods 334.5 378.1 412.1 341.1 366.3 381.8 386.3 395.4 375.9 390.3 409.1 414.1 1,473.3 1,465.8 1,529.9 1,589.4 1,663.8
Pro-forma gross profit 469.6 521.3 540.3 404.5 434.1 437.1 441.4 457.3 429.4 451.4 478.9 480.8 2,154.6 1,935.7 1,769.8 1,840.5 1,926.9
Opex:
Pro-forma R&D 222.8 227.3 241.2 232.3 238.4 241.3 245.0 249.0 254.0 257.0 260.0 263.0 813.3 923.6 973.6 1,034.0 1,096.0
Pro-forma S&M 35.5 37.2 37.1 36.7 37.0 37.5 37.0 37.5 38.0 38.5 39.0 39.0 143.7 146.5 149.0 154.5 162.7
Pro-forma G&A 20.8 20.1 21.2 19.6 20.7 19.1 18.0 18.5 19.0 19.5 20.0 20.0 86.8 81.7 76.3 78.5 84.0
Pro-forma Opex 279.1 284.6 299.5 288.6 296.0 297.8 300.0 305.0 311.0 315.0 319.0 322.0 1,043.8 1,151.8 1,198.9 1,267.0 1,342.7
Pro-forma Operating income 190.6 236.7 240.7 115.9 138.1 139.3 141.4 152.3 118.4 136.4 159.9 158.8 1,110.8 783.9 571.0 573.5 584.2
Interest income (expense) (0.2) 2.1 7.7 5.3 1.1 5.9 2.0 2.0 3.0 3.0 3.0 3.0 9.3 14.9 10.9 12.0 12.0
Pro-forma Pretax income 190.3 238.8 248.4 121.3 139.1 145.1 143.4 154.3 121.4 139.4 162.9 161.8 1,120.0 798.8 581.9 585.5 596.2
Pro-forma Tax expense 1.0 4.3 4.0 (5.4) 0.4 3.1 2.0 2.1 1.4 1.8 2.2 2.2 6.3 4.0 7.6 7.6 7.7
Pro-forma Net income $189.3 $234.5 $244.5 $126.6 $138.7 $142.0 $141.4 $152.2 $120.0 $137.6 $160.7 $159.6 $1,113.7 $794.8 $574.2 $577.9 $588.5
Marvell Te chno lo gy Group Ltd.
Diluted EPS (pf, inc. stock comp) $0.24 $0.33 $0.35 $0.16 $0.18 $0.19 $0.19 $0.21 $0.16 $0.18 $0.22 $0.22 $1.46 $1.08 $0.77 $0.78 $0.79
Diluted EPS (pf, ex-stock comp) $0.29 $0.38 $0.40 $0.21 $0.23 $0.24 $0.24 $0.26 $0.21 $0.24 $0.28 $0.28 $1.64 $1.27 $0.98 $1.00 $1.01
YoY -25% -7% -12% -48% -20% -35% -39% 26% -10% -2% 14% 5% 66% -23% -23% 2% 1%
Pro-forma Diluted shares 662.9 624.8 615.1 605.7 605.6 586.6 580.0 580.0 580.0 580.0 580.0 580.0 679.9 627.1 588.0 580.0 582.5
Margin Analysis (Pro-forma)
Gross Margin 58.5% 58.1% 56.8% 54.5% 54.5% 53.6% 53.5% 53.8% 53.5% 53.8% 54.1% 53.9% 59.7% 57.0% 53.8% 53.8% 53.8%
R&D 27.8% 25.3% 25.4% 32.0% 29.9% 29.6% 29.7% 29.3% 31.6% 30.6% 29.4% 29.5% 22.5% 27.2% 29.6% 30.2% 30.6%
S&M 4.4% 4.1% 3.9% 4.8% 4.6% 4.6% 4.5% 4.4% 4.7% 4.6% 4.4% 4.4% 4.0% 4.3% 4.5% 4.5% 4.5%
G&A 2.6% 2.2% 2.2% 2.7% 2.6% 2.3% 2.2% 2.2% 2.4% 2.3% 2.3% 2.2% 2.4% 2.4% 2.3% 2.3% 2.3%
Opex 34.8% 31.7% 31.5% 38.9% 37.2% 36.5% 36.4% 35.9% 38.7% 37.5% 36.0% 36.1% 28.9% 33.9% 36.5% 37.1% 37.5%
Operating margin 23.7% 26.4% 25.3% 15.6% 17.3% 17.1% 17.1% 17.9% 14.8% 16.3% 18.1% 17.8% 30.8% 23.1% 17.4% 16.8% 16.3%
Pretax margin 23.7% 26.6% 26.1% 16.3% 17.5% 17.8% 17.4% 18.2% 15.1% 16.6% 18.4% 18.1% 31.0% 23.5% 17.7% 17.1% 16.7%
Tax rate 0.5% 1.8% 1.6% 1.6% 0.3% 2.1% 1.4% 2.0% 2.0% 2.0% 2.0% 2.0% 0.6% 0.5% 1.3% 1.3% 1.3%
Source: Company Data, BofA Merrill Lynch Global Research Estimates
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Table 6: Marvell -Segment model
1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13E 4Q13E 1Q14E 2Q14E 3Q14E 4Q14E FY11 FY12 FY13E FY14E FY15E
Business Segment Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12E Jan-13E Apr-13E Jul-13E Oct-13E Jan-14E Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
Storage 390.0 439.6 432.5 298.4 358.1 383.2 395.8 411.6 382.8 398.1 422.0 417.8 1,650.7 1,560.6 1,548.8 1,620.8 1,658.0
Networking 171.6 176.7 175.7 173.9 172.2 179.1 184.6 186.5 180.9 186.3 191.9 193.8 683.1 698.0 722.4 752.9 790.6
Mobile and Wireless 203.1 237.6 294.7 229.8 227.5 216.2 207.6 213.9 203.2 217.4 232.6 240.6 1,124.0 965.3 865.2 893.8 975.3
Other (Printer ASICs, DTV) 37.7 43.6 47.5 40.5 38.5 37.6 36.9 38.0 35.7 37.1 38.6 39.8 154.1 169.2 151.0 151.3 155.4
Total $802.4 $897.5 $950.4 $742.7 $796.4 $816.1 $825.0 $850.0 $802.6 $839.0 $885.2 $892.1 $3,611.9 $3,393.0 $3,287.4 $3,418.8 $3,579.3
Check
QoQ
Storage -1.0% 12.7% -1.6% -31.0% 20.0% 7.0% 3.3% 4.0% -7.0% 4.0% 6.0% -1.0%
Networking 4.0% 3.0% -0.6% -1.0% -1.0% 4.0% 3.1% 1.0% -3.0% 3.0% 3.0% 1.0%
Mobile and Wireless -35.0% 17.0% 24.0% -22.0% -1.0% -5.0% -4.0% 3.0% -5.0% 7.0% 7.0% 3.5%
Other (Printer ASICs, DTV) 29.6% 15.7% 9.1% -14.8% -4.9% -2.1% -2.0% 3.0% -6.0% 4.0% 4.0% 3.0%
Total -10.9% 11.9% 5.9% -21.9% 7.2% 2.5% 1.1% 3.0% -5.6% 4.5% 5.5% 0.8%
YoY Growth
Storage -15% 13% 6% -24% -8% -13% -8% 38% 7% 4% 7% 1% 9.0% -5.5% -0.8% 4.6% 2.3%
Networking 0% -2% 6% 5% 0% 1% 5% 7% 5% 4% 4% 4% 21.7% 2.2% 3.5% 4.2% 5.0%
Marvell Te chno lo gy Group Ltd.
Mobile and Wireless 8% -14% -15% -26% 12% -9% -30% -7% -11% 1% 12% 13% 105.9% -14.1% -10.4% 3.3% 9.1%
Other (Printer ASICs, DTV) 4% -8% 15% 39% 2% -14% -22% -6% -7% -1% 5% 5% -17.0% 9.8% -10.8% 0.2% 2.7%
Total -6.2% 0.1% -0.9% -17.5% -0.8% -9.1% -13.2% 14.4% 0.8% 2.8% 7.3% 4.9% 28.6% -6.1% -3.1% 4.0% 4.7%
% of total
Storage 49% 49% 46% 40% 45% 47% 48% 48% 48% 47% 48% 47% 46% 46% 47% 47% 46%
Networking 21% 20% 18% 23% 22% 22% 22% 22% 23% 22% 22% 22% 19% 21% 22% 22% 22%
Mobile and Wireless 25% 26% 31% 31% 29% 26% 25% 25% 25% 26% 26% 27% 31% 28% 26% 26% 27%
Other (Printer ASICs, DTV) 5% 5% 5% 5% 5% 5% 4% 4% 4% 4% 4% 4% 4% 5% 5% 4% 4%
Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
Source: Company Data, BofA Merrill Lynch Global Research Estimates
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Table 7: Marvell - Balance sheet
1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13E 4Q13E 1Q14E 2Q14E 3Q14E 4Q14E FY11 FY12 FY13E FY14E FY15E
Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12E Jan-13E Apr-13E Jul-13E Oct-13E Jan-14E Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
ASSETS
Cash/Equivalents 782.4 863.0 850.9 784.9 880.6 906.1 950.2 1,007.9 1,043.8 1,067.7 1,110.9 1,161.9 1,847.1 784.9 1,007.9 1,161.9 1,278.5
ST Investments 1,485.4 1,536.8 1,573.8 1,461.6 1,322.1 1,228.1 1,228.1 1,228.1 1,228.1 1,228.1 1,228.1 1,228.1 1,083.0 1,461.6 1,228.1 1,228.1 1,228.1
Accounts Receivable (net) 425.5 405.8 451.1 407.3 417.4 390.8 398.6 410.7 387.8 405.4 427.7 431.1 459.4 407.3 410.7 431.1 458.5
Inventory 299.1 322.0 310.0 354.1 353.4 345.7 330.3 320.8 304.9 308.1 313.9 317.7 245.4 354.1 320.8 317.7 337.9
Prepaid & Other Current Assets 80.2 70.8 61.7 71.1 68.2 58.9 58.9 58.9 58.9 58.9 58.9 58.9 69.6 71.1 58.9 58.9 58.9
Deferred Income Taxes 8.2
Total Current Assets 3,072.6 3,198.4 3,247.5 3,079.0 3,041.6 2,929.6 2,966.1 3,026.3 3,023.5 3,068.2 3,139.5 3,197.6 3,712.6 3,079.0 3,026.3 3,197.6 3,361.9
PP&E 354.5 363.8 373.6 383.8 382.4 381.2 392.2 393.9 395.5 397.1 398.9 400.7 358.4 383.8 393.9 400.7 407.9
LT Investments 26.1 26.1 23.2 23.2 23.2 18.1 18.1 18.1 18.1 18.1 18.1 18.1 26.2 23.2 18.1 18.1 18.1
Goodwill 2,006.5 2,119.6 2,112.1 2,173.5 2,159.1 2,146.1 2,146.1 2,146.1 2,146.1 2,146.1 2,146.1 2,146.1 2,000.5 2,173.5 2,146.1 2,146.1 2,146.1
Acquired Intangible Assets (net) 123.9 110.0 100.0 100.0 129.0 100.0
Other non-current Assets 109.1 10.7 10.9 8.1 112.2 109.6 109.6 109.6 109.6 109.6 109.6 109.6 111.4 8.1 109.6 109.6 109.6
Total Assets 5,692.6 5,828.6 5,867.4 5,767.6 5,718.5 5,584.6 5,632.0 5,694.0 5,692.8 5,739.1 5,812.3 5,872.1 6,338.2 5,767.6 5,694.0 5,872.1 6,043.5
LIABILITIES
Accounts Payable 321.7 354.0 355.4 304.7 323.4 335.1 339.5 347.5 330.3 343.0 359.5 363.8 332.0 304.7 347.5 363.8 386.9
Accrued Liabilities 79.2 207.2 237.1 224.9 244.7 223.5 223.5 223.5 223.5 223.5 223.5 223.5 82.4 224.9 223.5 223.5 223.5
Marvell Te chno lo gy Group Ltd.
Accrued employee compensation 131.6 149.6
Accrued acquisition costs
Accrued facility consolidation charge
Income taxes payable
Deferred Income 80.9 67.8 69.2 60.0 65.4 67.8 67.8 67.8 67.8 67.8 67.8 67.8 76.2 60.0 67.8 67.8 67.8
Current Portion of capital lease obligations 0.5
Total Current Liabilities 613.4 629.0 661.7 589.6 633.5 626.4 630.8 638.8 621.6 634.3 650.8 655.2 640.7 589.6 638.8 655.2 678.3
Capital lease obligations (net)
Non-current income taxes payable
Other LT liabilities 175.8 173.5 166.3 164.0 162.5 155.0 155.0 155.0 155.0 155.0 155.0 155.0 175.6 164.0 155.0 155.0 155.0
Total Liabilities 789.2 802.4 828.1 753.6 796.0 781.4 785.8 793.8 776.6 789.3 805.8 810.2 816.3 753.6 793.8 810.2 833.3
Shareholders' Equity 4,903.4 5,026.1 5,039.3 5,014.0 4,922.5 4,803.1 4,846.3 4,900.2 4,916.2 4,949.8 5,006.4 5,062.0 5,521.9 5,014.0 4,900.2 5,062.0 5,210.3
Total Liabilities & Shareholders' Equity 5,692.6 5,828.6 5,867.4 5,767.6 5,718.5 5,584.6 5,632.0 5,694.0 5,692.8 5,739.1 5,812.3 5,872.1 6,338.2 5,767.6 5,694.0 5,872.1 6,043.5
Total cash (included restricted cash) $2,294 $2,426 $2,448 $2,270 $2,226 $2,152 $2,196 $2,254 $2,290 $2,314 $2,357 $2,408 $2,956 $2,270 $2,254 $2,408 $2,525
Total debt
Net Cash $2,294 $2,426 $2,448 $2,270 $2,226 $2,152 $2,196 $2,254 $2,290 $2,314 $2,357 $2,408 $2,956 $2,270 $2,254 $2,408 $2,525
Net Cash/dil. share $3.49 $3.89 $3.99 $3.79 $3.74 $3.77 $3.85 $3.95 $4.02 $4.06 $4.13 $4.22 $4.37 $3.64 $3.91 $4.22 $4.41
Days Sales Outstanding (DSO) 48.3 41.1 43.2 49.9 47.7 43.6 44.0 44.0 44.0 44.0 44.0 44.0
Days Payables Outstanding (DPO) 87.5 85.2 78.5 81.3 80.3 79.9 80.0 80.0 80.0 80.0 80.0 80.0
Cash conversion days (DIO+DSO-DPO) 42.3 33.7 33.3 63.3 55.4 46.3 42.0 38.0 38.0 36.0 34.0 34.0
Source: Company Data, BofA Merrill Lynch Global Research Estimates
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Table 8: Marvell - Cash flow model
1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13E 4Q13E 1Q14E 2Q14E 3Q14E 4Q14E FY11 FY12 FY13E FY14E FY15E
Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12E Jan-13E Apr-13E Jul-13E Oct-13E Jan-14E Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
Net Income 146.9 192.4 195.1 80.7 94.5 93.1 92.8 102.0 70.4 86.9 108.5 107.3 904.1 615.1 382.4 373.2 378.7
Depreciation and Amortization 24.0 22.4 20.2 21.8 21.2 21.3 16.5 20.4 19.3 20.1 21.2 21.4 93.2 88.5 79.4 82.1 85.9
Stock Based Compensation 27.5 30.4 30.6 31.4 27.2 33.2 28.9 30.5 29.8 31.0 32.4 32.7 118.4 119.9 119.8 125.9 131.0
Gain on sale of equity investment (5.9)
Loss (gain) from write−off and disposition of assets 4.3 9.6 4.3
Facilities Consolidation charge 1.1
Amortization of marketable securities premium
Fair market value adjustment to inventory sold (2.4)
Excess tax benefits from stock-based compensation (0.0) (0.0) (0.1) (0.1) (0.0) (0.0) (0.9) (0.2) (0.0)
Deferred income Taxes 4.1
Changes in assets/liabilities (39.4) 3.8 0.3 (81.3) 38.5 26.3 11.9 5.5 21.6 (8.1) (11.7) (2.8) (11.3) (116.5) 82.2 (0.9) (24.5)
Accounts Receivable 33.9 19.7 (45.4) 46.3 (10.1) 26.6 (7.9) (12.1) 22.9 (17.6) (22.3) (3.3) (102.6) 54.6 (3.5) (20.3) (27.4)
Inventory (53.1) (22.9) 12.0 (37.1) 0.2 7.8 15.4 9.5 15.9 (3.2) (5.8) (3.8) (1.3) (101.1) 33.0 3.0 (20.2)
Prepaid /Other Asset 0.6 16.8 16.8 (6.7) 4.2 11.4 50.2 27.5 15.6
Accounts Payable (5.3) 12.3 (2.8) (51.3) 21.2 6.3 4.4 8.0 (17.2) 12.7 16.5 4.4 42.5 (47.1) 39.9 16.4 23.1
Accrued Liabililties and other (5.5) 5.4 (17.9) (3.6) 18.1 (4.2) (45.2) (21.6) 13.9
Accrued Employee compensation (14.9) (14.4) 36.2 (19.5) (0.6) (24.0) 21.2 (12.6) (24.7)
Income Taxes Payable 7.2
Marvell Te chno lo gy Group Ltd.
Deferred income 4.7 (13.1) 1.4 (9.3) 5.5 2.4 16.8 (16.2) 7.9
Purchases of Investments (677.2) (462.7) (444.3) (269.3) (421.7) (225.3) (1,264.5) (1,853.4) (646.9)
Sales and maturities of investments 272.5 408.5 402.1 379.0 558.8 322.5 868.8 1,462.2 881.3
Cash paid for acquisition (net) (2.0) (75.2) (29.4) (77.2)
Purchase of equity investments (1.8) (0.5) (5.0) (0.8) 9.2 (2.3) (5.8)
Purchase of property and equipment (17.0) (25.2) (20.1) (26.4) (18.9) (10.8) (27.5) (22.1) (20.9) (21.8) (23.0) (23.2) (90.2) (88.8) (79.3) (88.9) (93.1)
Purchase of technology licenses (3.3) (3.3) (3.0) (4.2) (2.0) (4.4) (23.1) (13.8) (6.5)
Cash from Investing Activities ($443.0) ($83.7) ($67.2) $3.8 $111.2 $81.3 ($27.5) ($22.1) ($20.9) ($21.8) ($23.0) ($23.2) ($529.3) ($590.1) $142.9 ($88.9) ($93.1)
Repurchase of common stock (803.5) (135.7) (215.2) (186.5) (223.2) (250.3) (50.0) (50.0) (50.0) (50.0) (50.0) (50.0) (87.5) (1,340.9) (573.5) (200.0) (200.0)
Proceeds from stock issuance 5.2 36.5 8.6 47.5 17.8 38.9 166.0 97.9 56.7
Dividend payments (33.5) (33.7) (33.7) (39.4) (39.4) (39.4) (39.4) (101.0) (157.5) (180.8)
Principal payments on capital lease obligations (0.5) (1.9) (0.5)
Excess tax benefits from stock-based compensation 0.0 0.0 0.1 0.1 (8.8) 0.0 0.9 0.2 (8.8)
Cash from Financing Activities ($798.8) ($99.2) ($206.4) ($139.0) ($214.2) ($244.9) ($83.7) ($83.7) ($89.4) ($89.4) ($89.4) ($89.4) $77.4 ($1,243.4) ($626.6) ($357.5) ($380.8)
Net Change in Cash ($1,064.7) $80.6 ($12.0) ($66.0) $95.7 $25.5 $44.0 $57.7 $36.0 $23.9 $43.2 $51.0 $741.6 ($1,062.2) $223.0 $154.0 $116.7
Free Cash Flow (CFO - Capex - licenses) $156.8 $234.9 $238.5 $38.4 $177.7 $174.0 $127.8 $141.4 $125.3 $113.2 $132.5 $140.3 $1,080.2 $668.6 $620.9 $511.5 $497.4
As % of sales 20% 26% 25% 5% 22% 21% 15% 17% 16% 13% 15% 16% 30% 20% 19% 15% 14%
Source: Company Data, BofA Merrill Lynch Global Research Estimates
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Price objective basis & risk
Marvell Technology Group Ltd. (MRVL)
Our $13 PO is based on 13x FY14E (CY13E) EPS, at the lower-end of comps
due to its more mature growth profile.
Investment risks: 1) Headwinds to gross margins from growth being led by lower
margin wireless products, 2) the applications processor market is intensely
competitive and could miss product cycles, 3) socket loss at primary wireless
customer RIM, 4) widely expected share gains in HDDs do not materialize, 5)
SSDs begin to cannibalize HDD sales.
Link to Definitions
Technology
Click here for definitions of commonly used terms.
Analyst Certification
I, Vivek Arya, hereby certify that the views expressed in this research report
accurately reflect my personal views about the subject securities and issuers. I
also certify that no part of my compensation was, is, or will be, directly or
indirectly, related to the specific recommendations or view expressed in this
research report.
US - Semiconductors Coverage Cluster
Investment rating Company BofA Merrill Lynch ticker Bloomberg symbol Analyst
BUY
Altera Corp. ALTR ALTR US Vivek Arya
Analog Devices Inc. ADI ADI US Vivek Arya
Avago AVGO AVGO US Vivek Arya
Broadcom Corp. BRCM BRCM US Vivek Arya
Intel INTC INTC US Vivek Arya
LSI LSI LSI US Vivek Arya
NXP Semiconductors NV NXPI NXPI US Vivek Arya
Skyworks Solutions, Inc. SWKS SWKS US Vivek Arya
Texas Instruments Inc. TXN TXN US Vivek Arya
NEUTRAL
Marvell Technology Group Ltd. MRVL MRVL US Vivek Arya
Maxim Integrated Products Inc. MXIM MXIM US Vivek Arya
NVIDIA Corporation NVDA NVDA US Vivek Arya
Xilinx Inc. XLNX XLNX US Vivek Arya
UNDERPERFORM
Advanced Micro Devices, Inc AMD AMD US Vivek Arya
RF Micro Devices RFMD RFMD US Vivek Arya
TriQuint TQNT TQNT US Vivek Arya
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iQmethod SM Measures Definitions
Business Performance Numerator Denominator
Return On Capital Employed NOPAT = (EBIT + Interest Income) * (1 - Tax Rate) + Goodwill Total Assets – Current Liabilities + ST Debt + Accumulated Goodwill
Amortization Amortization
Return On Equity Net Income Shareholders’ Equity
Operating Margin Operating Profit Sales
Earnings Growth Expected 5-Year CAGR From Latest Actual N/A
Free Cash Flow Cash Flow From Operations – Total Capex N/A
Quality of Earnings
Cash Realization Ratio Cash Flow From Operations Net Income
Asset Replacement Ratio Capex Depreciation
Tax Rate Tax Charge Pre-Tax Income
Net Debt-To-Equity Ratio Net Debt = Total Debt, Less Cash & Equivalents Total Equity
Interest Cover EBIT Interest Expense
Valuation Toolkit
Price / Earnings Ratio Current Share Price Diluted Earnings Per Share (Basis As Specified)
Price / Book Value Current Share Price Shareholders’ Equity / Current Basic Shares
Dividend Yield Annualised Declared Cash Dividend Current Share Price
Free Cash Flow Yield Cash Flow From Operations – Total Capex Market Cap. = Current Share Price * Current Basic Shares
Enterprise Value / Sales EV = Current Share Price * Current Shares + Minority Equity + Net Debt + Sales
Other LT Liabilities
EV / EBITDA Enterprise Value Basic EBIT + Depreciation + Amortization
iQmethod SMis the set of BofA Merrill Lynch standard measures that serve to maintain global consistency under three broad headings: Business Performance, Quality of Earnings, and validations. The key features of iQmethod are: A consistently
structured, detailed, and transparent methodology. Guidelines to maximize the effectiveness of the comparative valuation process, and to identify some common pitfalls.
iQdatabase ® is our real-time global research database that is sourced directly from our equity analysts’ earnings models and includes forecasted as well as historical data for income statements, balance sheets, and cash flow statements for
companies covered by BofA Merrill Lynch.
iQprofile SM, iQmethod SM are service marks of Merrill Lynch & Co., Inc.iQdatabase ®is a registered service mark of Merrill Lynch & Co., Inc.
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Marvell Te chno lo gy Group Ltd.
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Important Disclosures
MRVL Price Chart
1-Aug:B 18-Nov:N 4-Feb 11-Aug 18-May
Dhanda PO:US$17 Arya PO:US$14 PO:US$15
PO:US$17
US$30 28-Aug 9-Feb 4-Mar 7-Oct
US$27 PO:US$19 PO:US$19 PO:US$19 PO:US$16
US$24 2-Oct 13-Apr 24-May 27-Jan
PO:US$20 PO:US$22 PO:US$17 PO:US$17
US$21
26-Oct 27-May 23-Feb
US$18 PO:US$21 PO:US$18 PO:US$18
US$15
US$12
US$9
US$6
US$3
US$0
1-Jan-10 1-Jan-11 1-Jan-12
MRVL Review Restricted No Coverage
B : Buy, N : Neutral, U : Underperform, PO : Price objective, NA : No longer valid, NR: No Rating
The Investment Opinion System is contained at the end of the report under the heading "Fundamental Equity Opinion Key". Dark grey shading indicates the security is restricted with the opinion suspended. Medium grey shading indicates the
security is under review with the opinion withdrawn. Light grey shading indicates the security is not covered. Chart is current as of July 31, 2012 or such later date as indicated.
Investment Rating Distribution: Technology Group (as of 01 Jul 2012)
Coverage Universe Count Percent Inv. Banking Relationships* Count Percent
Buy 111 51.15% Buy 81 76.42%
Neutral 64 29.49% Neutral 44 83.02%
Sell 42 19.35% Sell 25 60.98%
Investment Rating Distribution: Global Group (as of 01 Jul 2012)
Coverage Universe Count Percent Inv. Banking Relationships* Count Percent
Buy 1913 50.14% Buy 1294 73.40%
Neutral 994 26.06% Neutral 628 70.09%
Sell 908 23.80% Sell 513 60.71%
* Companies in respect of which BofA Merrill Lynch or one of its affiliates has received compensation for investment banking services within the past 12 months. For purposes of this
distribution, a stock rated Underperform is included as a Sell.
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RATINGS, indicators of potential price fluctuation, are: A - Low, B - Medium and C - High. INVESTMENT RATINGS reflect the analyst’s assessment of a
stock’s: (i) absolute total return potential and (ii) attractiveness for investment relative to other stocks within its Coverage Cluster (defined below). There
are three investment ratings: 1 - Buy stocks are expected to have a total return of at least 10% and are the most attractive stocks in the coverage cluster;
2 - Neutral stocks are expected to remain flat or increase in value and are less attractive than Buy rated stocks and 3 - Underperform stocks are the least
attractive stocks in a coverage cluster. Analysts assign investment ratings considering, among other things, the 0-12 month total return expectation for a
stock and the firm’s guidelines for ratings dispersions (shown in the table below). The current price objective for a stock should be referenced to better
understand the total return expectation at any given time. The price objective reflects the analyst’s view of the potential price appreciation (depreciation).
Investment rating Total return expectation (within 12-month period of date of initial rating) Ratings dispersion guidelines for coverage cluster*
Buy ≥ 10% ≤ 70%
Neutral ≥ 0% ≤ 30%
Underperform N/A ≥ 20%
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Price charts for the securities referenced in this research report are available at http://pricecharts.ml.com, or call 1-800-MERRILL to have them mailed.
MLPF&S or one of its affiliates acts as a market maker for the equity securities recommended in the report: Marvell Tech.
The company is or was, within the last 12 months, an investment banking client of MLPF&S and/or one or more of its affiliates: Marvell Tech.
MLPF&S or an affiliate has received compensation from the company for non-investment banking services or products within the past 12 months: Marvell Tech.
The company is or was, within the last 12 months, a non-securities business client of MLPF&S and/or one or more of its affiliates: Marvell Tech.
MLPF&S or an affiliate has received compensation for investment banking services from this company within the past 12 months: Marvell Tech.
MLPF&S or an affiliate expects to receive or intends to seek compensation for investment banking services from this company or an affiliate of the company
within the next three months: Marvell Tech.
MLPF&S or one of its affiliates is willing to sell to, or buy from, clients the common equity of the company on a principal basis: Marvell Tech.
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The company is or was, within the last 12 months, a securities business client (non-investment banking) of MLPF&S and/or one or more of its affiliates: Marvell
Tech.
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