Analysts Applaud Marvell-Cavium Deal

SAN JOSE, Calif. — Marvell will get an infusion of growth and Cavium may see a path to profitability from their proposed $6 billion merger. However, the more diversified chip maker that will result from the merger still faces relatively modest prospects for growth in revenues and profits, said analysts who applauded the deal.

Marvell estimated the two companies will have a total $3.4 billion in annual revenues growing at an average of 6 to 8 percent a year. That’s only slightly ahead of past projections for Marvell and the long-term average for the semiconductor industry overall.

The two companies have relatively minor overlap in products and customers. Executives said they have no plans for cutting products, but they do see savings in the first 18 months of up to $170 million from shared R&D and offices and reduced overhead.

Cavium brings nearly a billion-dollars a year in sales of a wide range of networking and comms chips and boards. Marvell’s products mainly consist of hard-disk and solid-state controllers, Ethernet switches and Wi-Fi and Bluetooth chips.

The two companies occupy a “middle ground below Broadcom, Intel and Qualcomm, but they are not small enough to be easily acquired,” said Linley Gwennap, principal of the Linley Group. He called the deal “overall positive,” noting both companies have embraced ARM cores, making it easier to merge and manage products lines.

Marvell ranks 33^rd among top semiconductor makers with $2.4 billion in revenue, according to IC Insights. The two are a good fit, said Rob Lineback, senior analyst for the company, but he noted Cavium, focusing on fast growth, has “posted five years of annual net losses and is headed for a sixth straight net loss in 2017.”

The deal “creates cost-efficient scale and complementary product offerings that may boost future revenue growth potential,” Ross Seymore, analyst with Deutsche Bank, wrote in a research note. The 11-20 percent premium Marvell offered for Cavium “is a somewhat surprisingly attractive price” compared to typical semiconductor acquisitions paying 25-30 percent premiums, he added.

The deal comes at a time when Marvell’s Prestera line of Ethernet switches has “turned the corner and returned to growth” as second only to Broadcom, said Bob Wheeler, comms analyst at the Linley Group. He speculated a future Cavium XPliant switch could appear on the Prestera road map as its first programmable part.

For its part, Cavium has been running a distant third to Intel and NXP in embedded comms processors with its Octeon line, its strongest product. The future of Cavium’s ThunderX ARM server SoC is less clear under a cost-conscious Marvell, he added.

Next page: Diversifying beyond the hard-disk drive