Marvell Technology Group (NASDAQ:MRVL) makes semiconductor chips predominantly used in hard drives. Their chips also can be found in a wide range of communication applications such as network routers, Microsoft Xbox, and smartphones. Marvell's semiconductor chips power electronics such as Research in Motion’s Blackberry, the Amazon Kindle, and Apple’s iPhone and iPod with wireless-internet capabilities. The company earned $2.8 billion in revenue and $353 million in net income in 2009.
Marvell is a fabless semiconductor company, meaning that they outsource the actual production of their semiconductors to other factories. Marvell’s revenue growth has primary come from sales of its semiconductors designed for data storage. Although headquartered in the United States, Marvell generates 96% of its revenue from outside the US (mainly in Asia). The slowdown in the global economy has led to lower sales growth for Marvell's storage products. As a result, revenue growth for the company's semiconductor products have fallen during the slowdown.
Marvell has increased production of semiconductors for consumer electronics, such as gaming consoles and smart phones in order to take advantage of the growing demand for wireless, hand held devices.
Geographically, Marvell's net revenues are based on the destination of their semiconductor shipments. Marvell sells its chips to many global corporations such as Intel, Western Digital, Toshiba, and Fujitsu, but most of Marvell's chips are shipped to and assembled in Asian countries.
As with any technology-driven company, innovation is crucial to Marvell's future success. Marvell devotes approximately one-third of net revenue to research and development. A substantial portion of Marvell’s expenses come from research and development. The focus of their research and development sector is not only to develop new lines of products but also to reduce production costs of its current chips.
Demand in the semiconductor industry is very cyclical. Consumer and corporate demand for semiconductor containing electronics can reach levels beyond a manufacturer’s production capability. In the same way, the demand for these consumer electronics, especially PCs, can plummet over the course of a month or two. Typically, the consumer market for electronics is more volatile than the corporate market for electronics. Because a majority of Marvell’s sales still come from large corporations, it is partially protected from substantial declines in demand. As its presence in the consumer electronics business increases, Marvell will increase its overall exposure to this volatile industry. Despite its volatility, the semiconductor industry has experienced an average 13% annual growth over the past 20 years.
The ripple effects of the United States economic slowdown have reached many of Marvell’s primary markets, including China and Japan. As businesses tighten their budgets for new technology, there has been a sharp decline in the demand of the new hard disk drives that traditionally account for nearly half of Marvell’s sales. As a result, sales of Marvell's chips used for storage have experienced slower growth during the slow economic times. Also, the Chinese and Japanese currencies have depreciated relative to the United States dollar. Consequently, the chipmaker’s products have become more expensive relative to comparable products of its Chinese counterparts. Some analysts believe that Marvell may lose market share to companies that can produce chips at lower costs. With excess inventory in their storage segment, new orders for Marvell’s chips will continue to slow down.
Although Marvell’s diverse portfolio puts the company in competition with several large companies. In the storage industry, LSI Corporation merged with Agere and elected to make storage units its primary focus.  In the communication market, Marvell will compete with Broadcom and Atheros. Both Broadcom and Atheros have favorable reputations and have been aggressively pushing their networking chips to enterprises and retail customers.
Furthermore, a significant amount of Marvell’s revenue come from a limited number of customers. For example, one customer accounted to more than 10% of their net revenues.Most of Marvell’s sales come from orders, which are easy to cancel, change, or delay.
Because growth in the storage industry is slowing down, semiconductor companies like Broadcom and Atheros have started to branch out. One of Marvell’s strategies has been to shift focus from servicing mainly large businesses to providing communication chips to a wide-range of individual consumer electronics. Marvell’s Wi-Fi chips, which are present in several popular media players, are among its most promising new products. As 3G and now 4G technologies become standard, Marvell will be in position to supply many new costumers with Wi-Fi capable phones.