Marvell Technology (NASDAQ: MRVL) - American semiconductor manufacturer. The company is considered very promising, and that's why it's overpriced.. But huge debt and losses raise doubts about the validity of its current price..
When creating the material, sources were used, inaccessible to users from the Russian Federation. We hope, Do you know, what to do.
What do they earn
According to the company's annual report, its revenue is distributed as follows:
- Network operation - 57%. Controllers, adapters, processors and other equipment, necessary for the operation of computing devices.
- Data storage - 39%. Everything, what you need for hard drives and servers. As a matter of fact, the segment works for data centers.
- Other - 4%. Mainly server parts.
By country, the company's revenue is distributed as follows::
- China - 43%;
- USA - 11%;
- Malaysia - 9%;
- Thailand - 8%;
- Philippines - 6%;
- Japan - 5%;
- Other unnamed countries - 18%.
Direct sales to tech companies generate 75% Marvell Technology revenue, 25% accounted for by intermediaries. The company is currently in the red.
Arguments in favor of the company
"It was the best ever". There is a huge shortage of semiconductors in the world: chips are needed by everyone and everywhere, and in sufficient quantities they are nowhere to be found. This allows manufacturing companies to raise prices.. So for the next couple of years, Marvell may well expect to see revenue growth..
Something about the clouds. More than a third of the company's revenue comes from cloud computing and data centers. This sector will continue to grow for a long time., And, frankly,, Marvell's focus on the development of this segment partly explains the inflatedness of its quotes. And data centers are, undoubtedly, positive point for those, who plans to invest in a company with an eye on the long term.
Demand for chips by industries, billion dollars
| Computer Computing | 160,2 |
| Wireless technology | 126,7 |
| Industry | 41,6 |
| Automotive | 39,5 |
| Consumer technology | 60,1 |
| Communication infrastructure | 36,3 |
160,2
What can get in the way
"It was the worst of all time". The company is unprofitable for two reasons:
- It constantly invests in the expansion and modernization of its enterprise.. Recently, for example, she bought Innovium for $1.1 billion.
- Her expenses are skyrocketing, what is the flip side of the rush demand for semiconductors: prices are now being raised by everyone.
No reason to count, that something will change here in the near future. Therefore, one can only hope, that the company's revenue will grow faster than spending - and due to this, Marvell will still make a profit in our lifetime.
Concentration. According to the company's annual report, 13% its revenue comes from a small company called Wintech. Sudden change in relationship with Wintech could hurt Marvell's financials, so that's something to keep in mind.
Dividends. The company pays 24 cent of dividends per share per year - almost 0,4% per annum. The company spends approximately $198 million a year on payouts., which is more than all her profits. More precisely, She didn't make a profit this year., now she's working at a loss. Payments should be cut at least for this reason - although that would be enough, that the company spends a lot on business expansion. On the other hand, it is unlikely that Marvell quotes will suffer from the exodus of dividend investors in the event of a payout cut.
Money from the nightstand. The company is unprofitable and at the same time burdened with large debts, the amount of which is $ 6.097 billion, of which 1.084 billion must be repaid within a year. She has enough money at her disposal to close urgent debts., but in general, an increase in its debt burden cannot but worry in anticipation of an increase in rates and an increase in the cost of loans.
Especially with the current trends in the development of the company and its focus on business expansion, I would expect, that the debt burden on the company will increase, - this will certainly annoy investors.
Competitors. The problem with the company's competitors is not, that they actively influence Marvell's pricing policy, - in conditions of insane demand for semiconductors, with a lack of supply, there will be enough money for everyone. The fact, what Marvell looks like compared to competitors expensive.
For example, Marvell's earnings-per-share ratio metric is 13,52. And NXP has this indicator at the level 5,81, у Broadcom — 7,88, у Microchip — 7,37, у Silicon Motion Technology — 3,62.
Understandably, that investors gave Marvell big credit, because it develops a direction with data centers, which is considered extremely promising. But still, even in this context, Marvell looks prohibitively expensive.. This is also why, that the benefits from this direction are not yet strongly manifested, the company is still unprofitable.
Big Trouble in Little China. The Evergrande story could end in a massive recession in China - and, Consequently, lead to a weakening of business activity throughout Asia. This could be a problem for Marvell, since she receives the main money in China and other Asian countries. And maybe not become. Marvell delivers to Chinese contractors of American companies - the final buyers of products, built from Marvell components, for the most part are not in China. But everything can be.
Cost of materials, parts and processes in the production chain for chips by type, percentage increase compared to August 2020
| Display driver integrated circuit | To 50% |
| Copper | 40% |
| Services of common contract chip manufacturers | 30—40% |
| Chips for microcontrollers | 30—40%, in exceptional cases until 400% |
| Power Management Chips | 30—40%, in exceptional cases until 500% |
| Framework | 25—30%, over 200% on individual specifications |
| Layer for connecting processor components | 20—30% |
| Chip packing services | 15—20% |
| High quality contract chip manufacturers services | 8—10% |
| Plate materials | 5% |
To 50%
What's next
In my opinion, The company's cons outweigh its pros.. Therefore, I would not take these shares at the current price.. On the other hand, there may not be a correction: hype around semiconductors and data centers will stimulate investor interest in these shares. So you can invest here - but at your own peril and risk.
