Categories Analysis, Technology

Marvell Technology (MRVL) stock nears 14-year high on 5G opportunity

Marvell Technology Group Ltd. (NASDAQ: MRVL) stock has been trading near the 14-year high of $28.86 on Wednesday as investors remained positive about the 5G opportunity for the company. The shares have risen over 79% in the past five years and over 65% in the past year. This has been amidst the weakness in its core storage and enterprise networking businesses.

In the near term, the stock has shown a consistent upward trend as it has risen over 7% in the past month and over 16% in the past three months. The shares, which are trading over $27.90 in the afternoon, have exceeded the 50-day and 200-day moving average of $26.05 and $25.41, respectively. The moving average is likely to act as a support level.

integrated circuits
Image for representation. Courtesy: Magnus Engø on Unsplash

The company’s top-line remained under tremendous pressure from the US Government’s export restrictions on certain Chinese customers. The storage products will be hurt by the rebalancing of inventory levels in customers’ supply chains, softening demand in gaming and video surveillance applications, and the ongoing shift from HDD’s to SSD’s in personal computers.

However, the company relied upon Aquantia, which manufacturers high-speed transceivers including copper and optical physical layer products, for extending its position in the Multi-Gig Ethernet segments. The 5G opportunity is expected to turn as a solution to the mounting concerns with the possible revenue growth of over $600 million per year.

The winning of high-value sockets in all target markets is expected to drive sustainable growth in the future for the company driven by the strength of its engagement with customers. The company delivered a significant amount of its 5G products in the third quarter. This helped in rolling out base stations for the initial wave of 5G deployments in Korea.

In the second half of this year, the company expects solid growth in its 5G-related revenue backed by continued Korea deployment and the start of 5G adoption in Japan and other countries such as the US. The production of baseband processors for the second Tier 1 base station customer is expected to start in the fourth quarter of fiscal 2021. This could further remain as an addition to the overall 5G revenue ramp.

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For the third quarter, the company reported a wider loss due to a 22% dip in the top line. The results were hurt by the US Government’s export restriction on certain Chinese customers. In early December, the company lowered its revenue guidance to reflect the Wi-Fi connectivity business sale to NXP (NASDAQ: NXPI). The divestiture encompasses Marvell’s Wi-Fi and Bluetooth technology portfolios and related assets.

The company’s networking business will be driven by the contributions from Avera and Aquantia for the fourth quarter. Also, 5G shipments are anticipated to remain strong despite weak demand from the enterprise end market. The company is likely to incur losses from the Wi-Fi business after the sale. The stock is likely to be beneficial by the 5G opportunity as the company is finding ways to lower its debt.

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