Will Apple Boost This Semiconductor Company?

by Justin Dove, Investment U Research
Wednesday, September 28, 2011

Last Friday, Ars Technica reported that an Apple (Nasdaq: AAPL) developer tool included support for the new quad-core Armada XP processor made by Marvell Technology Group (Nasdaq: MRVL).

There’s no confirmed reason for including support for Marvell’s chip, but there’s plenty of speculation. A few possible scenarios include:

Scenario #1 – Apple is evaluating the quad-core chip in comparison to a future Apple-designed quad-core processor. Apple’s first processor, the A4, was a single core. The subsequent A5 that debuted in the iPad 2 is a dual-core. And it’s likely that Apple is developing a quad-core down the road for a future iPhone or iPad, which may be in an evaluation stage.

Scenario #2 – As Ars Technica postulated, maybe Apple is kicking the tires on the Marvell quad-core itself for the iPad 3 or the next generation MacBook Air. NVIDIA (Nasdaq: NVDA) should be shipping its quad-core Tegra 3 processor in Android-based phones sometime next year. Maybe Apple wants to beat Android to the punch with Marvell’s Armada XP.

Scenario #3 – Apple is planning on using the Marvell chip in some other iOS device, such as the rumored iTV. As Paul McWilliams of Next Inning Technology Research wrote, “I think we have to assume that if Apple in fact releases a TV under its brand name it will be quite different from what we’re used to seeing.” McWilliams sees the television having a touchscreen remote, possibly similar to what Vizio recently released. Additionally, it would likely have solid computing potential and video capabilities – maybe enough to garner such a powerful processor.

Even if the first scenario is the closest to reality and Apple doesn’t plan on using Marvell’s chip, it implies that Apple sees the Armada XP as a strong product worthy of a benchmark. And while Marvell would certainly benefit from Apple using its chips in one of its products, it’s not necessarily critical.

Marvell Is No Small Fry Without Apple

With a $9-billion market cap, Marvell is no small fry. Marvell ships over one billion chips a year and was recently named “2011 Supplier of the Year” by Cisco (Nasdaq: CSCO).

“Marvell’s leading technology innovation and great service to Cisco deserves this recognition,” said Prentis Wilson, Vice President, Global Supplier Management, Cisco. “Marvell’s tireless effort to ensure continuity of supply, even after the tragic tsunami disaster in Japan, makes it an award-winning partner.”

At roughly $15 per share, Marvell’s stock has a P/E of 12.32 compared to an industry average of 30.06. It’s about 32 percent below its 52-week high of $22.04 per share, due to the slumping semiconductor market. Therefore, the beta is relatively high at 1.39 and the stock has lost almost 12 percent over the past year.

Marvell Tech’s Bottom Line

While Apple would certainly give Marvell’s stock a much-needed boost, the company should survive comfortably without it.

It’s had a rough second half, but so have most stocks, and certainly most semiconductor stocks. Marvell might be a nice feather in the cap of a contrarian who feels this market is a buy-low opportunity. Broadcom (Nasdaq: BRCM) certainly jumped on the slumping semiconductor market to acquire NetLogic (Nasdaq: NETL) earlier this month.

Good investing,

Justin Dove

Article by Investment U