Marvell Joins Harman - Analyst Blog

Marvell Technology Group (MRVL), a leading provider of semiconductor appliances, recently announced that it would be teaming up with Harman International Industries Inc. (HAR) to provide the automobile industry with in-built Internet technology. This foray into the automobile industry marks a milestone for Marvell.

Harman is an international audio and infotainment equipment company. The company designs, manufactures and markets audio and infotainment products for cars, residences, theatres, as well as electronics for audio professionals.

The Marvell Mobile Hotspot ("MMH") will make use of Harman’s integrating capabilities to deliver built-in Wi-Fi connectivity in automobiles. Automobile manufacturers will thus be able to offer their respective customers high-speed and secured Internet access through wireless devices or Bluetooth.

The in-built Internet technology has already been implemented in the Audi A8 cars. Marvell claims that the Wi-Fi software architecture developed by it will consume very little power, thereby conserving the battery of the mobile devices connected through it.

Financial details of the deal were unavailable. However, we believe the success of MMH technology with Audi A8 will drive sales from the automotive sector.

As per the market research firm Gartner Inc., automobile manufacturers will shift their focus toward featuring wireless connectivity into next-generation cars with the intention of increasing product differentiation and driving sales in mature markets. As a result, more than half the next-generation cars in these markets will have wireless connectivity by 2012. We believe that Marvell’s agreement with Harman is timely and positions the company to capitalize on this new business opportunity.

Additionally, we remain encouraged by Marvell’s continuous endeavors to enter new markets. In June, Marvell tied up with Hanwang, the leading eReader solution provider in China, to unveil next-generation, versatile eReaders at pocket-friendly prices.

We are also encouraged by the strong demand for Marvell’s new products which helped it report impressive first-quarter results. Marvell reported revenues of $856.0 million in the first quarter, which was up 64.0% year over year and 2.0% sequentially. Results were driven by a spike in sales of new products, launch of new programs, design wins and new customers. The company expects revenues from new products to increase from 16.0% in the first quarter to greater than 20.0% of total revenue in the second quarter.

Despite strong quarterly results, an encouraging outlook and new business opportunities, we remain concerned about stiff competition in the semiconductor market from major players, such as Intel Corp. (INTC), Texas Instruments Inc. (TXN) and LSI Corp. (LSI). A significant number of pending lawsuits is also cause for concern.

We have a short-term Hold rating on Marvell shares, implying a Zacks #3 Rank.
 
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