Buy Marvell Technology for 5G exposure, this investor says

Fresh off a new merger, semiconductor company Marvell Technology (Marvell Technology Stock Quote, Chart, News, Analysts, Financials NASDAQ:MRVL) should be on your radar if you’re looking to invest in the ongoing rollout of 5G networks globally. That’s according to Kim Bolton of Black Swan Dexteritas, who thinks there’s upside to the name over the next 12 months.

Marvell Technology has made a number of acquisitions over its history, including a $6-billion buy of ARM processors business Cavium in July, 2018, but the merger with Inphi Corp, which makes semiconductor components and optical subsystems, is now Marvell’s largest to date.

Closed last month and first announced last October, Marvell paid $10 billion for Inphi, which has Microsoft and Cisco Systems as two of its biggest customers and saw an almost doubling of revenue over 2020.

Marvell called the merger the creation of a semiconductor powerhouse, one which fits with the demands of today’s high-data workloads. The ballooning of Internet traffic and cloud computing and the debut of 5G wireless networks all mean that Inphi’s electro-optical interconnects are more crucial than ever, making Marvell the complete package in the semi space, according to the company.

“Together we will have the portfolio, capabilities and scale to expand Marvell’s leadership in its key growth end markets of 5G, Cloud and Automotive,” said Matt Murphy, president and CEO of Marvell, in an April press release. “I am also pleased that we are now organized as a US company and we look forward to continuing to drive innovation in semiconductor technology critical to the nation’s data economy.”

Like much of the tech sector, Marvell saw big gains over much of 2020, returning an incredible 79 per cent for the year. And 2021 has also started out for MRVL in a similar way to many tech names, showing early strength in January and into February and then dropping off over the ensuing months. Marvell is now down four per cent year-to-date.

But there’s likely room to grow for the stock and company going forward, according to Bolton, president at Black Swan.

“Currently, it’s trading at about $45-and-a-half and we have a price target of Marvell at $53,” said Bolton, speaking on BNN Bloomberg on Thursday.

“Marvell has all the trends and they’ll benefit from the rise of cloud storage, increased cloud services and the rollout of the whole 5G deployment and how that’s influencing the Internet of Things,” he said.

“We’ve been in it but we hold a portfolio between 25 and 30 stocks and there’s only so many we can get in here, [but] Marvell Technologies is a very strong contender,” Bolton said.

Marvell posted its fiscal fourth quarter and full year 2021 financials in March, showing net revenue for the Q4 of $798 million compared to $750 million a year earlier and net income of $16.5 million compared to a loss of $22.9 million for the fourth quarter 2020.

Marvell’s 2020 calendar year had kinks in it due to the pandemic’s effect on its business, but the company still managed to increase revenue, topping out at $2.969 billion for its fiscal 2021, up from $2.699 billion in fiscal 2020. Net income was a loss of $277 million versus a gain of $1.584 billion a year earlier.

Going forward, Marvell management said restrictions put in place by the US government on certain Chinese customers along with ongoing uncertainties around COVID-19 are likely to impact the company.

“The Marvell team has done an excellent job driving revenue growth, innovating to deliver new products, and positioning the company to emerge even stronger from the pandemic. We are excited about the numerous opportunities ahead in fiscal 2022. We anticipate strong growth in the first quarter of fiscal 2022, projecting revenue to grow approximately 15 year on year at the mid-point of guidance,” Murphy said.

Murphy said in the Q4 earnings call that the chip supply chain was “not completely prepared” for the surge in demand caused by COVID and the work-from-home environment that emerged and the industry will need time to increase its capacity.

“While we are confident that the industry will respond to these challenges, we anticipate a supply gap for at least through fiscal 2022. Lead times have extended across the board. We are seeing shortages for multilayer complex substrates, IC packaging capacity and fab constraints in certain technology nodes important for our products,” Murphy said.

Marvell’s share price dropped considerably on the Q4 release and muted outlook but the stock has gained back those losses in the time since.

Bolton said Marvell’s role in the ongoing move to 5G networks should keep the company moving in the right direction.

“They’re a leader in storage, networking, switching and embedded processing. Back in mid-2018 they acquired a company Cavium which really helped them when it comes to embedded processing,” Bolton said.

“They also have a very strong connection to the 5G momentum. They have connections with Samsung and they have a strong partnership also with Nokia on future 5G platforms,” he said.