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Marvell Moving Forward


Tech leader looking strong.

Marvell (MRVL) had put in a very strong quarter and guided essentially inline, (slight miss on revenues and slight beat on EPS). In one of my last Buzz posts on MRVL I predicted the upcoming quarter this way: "I think [it] will be a beat and conservative guide in-line."

That is exactly what we got. It's just too hard for nearly any company of MRVL's size (in the semi space) to take a chance and raise numbers currently if you have a diversified mix of products and sell into multiple industries. Plus, it's too early (in the quarter) and unless your in the solar space, the compression of demand is just enough to cause concern.

However, all this being said, I listened to the whole call last night and there are more than just raw numbers on any conference call. The biggest thing I try to key into is the tone of the call and what inflections can you pick out of the executives' comments. On this note, (as with Cisco's (CSCO) last call), I felt the tone was quite strong. With regard to guidance, the company all but said it's building a cushion in case it experiences more pressure due to economic conditions while making positive comments on new products and new customer wins as well as a very impressive guide for free cash flow generation (something many do not pay enough attention to anymore, in my opinion).

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Longer term, the company will continue to lead in its traditional networking, storage, Hard Disk Drive (HDD), and PC product families. As far as growth drivers, the Xscale purchase still continues to drive strong growth in the cellular smartphone markets. Additionally, the market seems to be realizing now that MRVL is a key play on the Solid State Drive (SSD) market. My view is that the SSD market will exhibit stunning growth and MRVL will be a key player in that lexicon.

Not to overstate this, but these free cash flow numbers (both last quarter and guided), should not be understated. The ultimate key for value creation is growth of cash flows. The tech sector has been a strong producer of free cash flow is a market where this is getting harder to find every quarter. Given these free cash flow numbers, I've raised my fair value on MRVL a couple points to a current range of $26-28 and I still feel the stock can trade well above this range given improved sentiment, GCVE, rate reductions by the ECB/BOE, and the eventual moves by the SEC to enforce naked shorting and the much needed reinstatement of an uptick rule.

Lastly, from a market perspective, the market is putting too much emphasis on Dell's (DELL) report and its comments on spreading IT weakness. While this is no surprise, I think DELL's mute to poor numbers are more reflective of DELL and less reflective of general macro conditions beyond what is already widely known. The Naz being down 30 plus is putting a little extra pressure on MRVL. I suspect if we were having an up day, MRVL would be trading flat. Technically, MRVL is sort of in no man's land with better value and support in the mid $13's, while being a breakout buy above $16.50. Should it trade in the mid $13's or lower, I'll increase my holdings.

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Position in MRVL, CSCO

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