Now that the dust has settled on news that Marvell Technology Group Ltd. will purchase Intel Corp.’s communications and application processor businesses for $600 million, many observers would love to know how Marvell plans to garner growth-never mind a simple return-on-investment-from the transaction.
Sehat Sutardja, Marvell’s chief executive officer and chairman of the board, appears to have selected his language and talking points carefully when he addressed investors and analysts in a conference call just after the deal was announced late last month to answer that very issue.
The formula for credibility, it appears, is composed of a sterling track record and a vision for the future that’s solidly rooted in current capabilities.
Thus Sutardja’s talking points were pitched at a presumably practically minded audience well-versed in parsing CEO statements and sifting for substance in a post-dot-com-bust era. Marvell’s CEO acknowledged the hard work ahead and mentioned aggressive investment in the purchased technologies and in efforts to integrate them with his firm’s strengths. He emphasized his sensible plan for developing and bringing complete platforms to existing and new customers for their rapid time-to-market products in high-volume markets, as well as Marvell’s need to enter new consumer electronics markets for future expansion.
In short, he assuaged concerns, focused on the task at hand and plotted a road ahead, while remaining in character as the well-respected taskmaster who has taken Marvell into a leadership position in the 300-million-unit per annum hard disk controller market.
That leadership-and, one suspects, the still-reverberating Intel deal-last week earned him the down-to-earth mantle, “Inventor of the Year,” from the Silicon Valley Intellectual Property Law Association. SVIPLA cited Sutardja’s authorship or co-authorship of 65 patents, 120 patent applications and leadership of “one of the most successful semiconductor companies in the world.” His selection, SVIPLA said, was due to “his outstanding technical and intellectual contributions to high-speed, mixed signal/digital signal processing solutions for the storage, communications and consumer electronics markets.”
In the view of at least one analyst who knows him personally, Sutardja is very much the practical achiever rather than the sort given to projecting an image of a silicon Svengali, conjuring images of growth no one can grasp flitting across a landscape that perpetually lies over the horizon. Thus, his careful choice of words to investors following the Intel announcement.
“Strategic opportunities like this are rare,” Sutardja said, humbly, to his investor audience. Then, ambitiously, he said, “The purchase will place Marvell among the leading cellular semiconductor companies in the world.” Back to basics, he added: “We acknowledge that to truly capitalize on such a tremendous and rare opportunity, we have a significant amount of work and investment ahead of us.”
So much for the big picture, painted in hues of ambition and practicality. And the details?
The Intel purchase accelerates Marvell’s entrance into the consumer electronics space, particularly in the cellular industry, Sutardja said. Marvell will integrate Intel’s technologies with its own advancements in WLAN and power management to offer complete platform solutions across many high-volume markets. In the cellular industry, Intel’s chips already are shipping via customer relationships with Motorola Inc., Samsung Electronics Co. Ltd., Research In Motion Ltd., Palm Inc. and others.
“Now, with Intel’s cellular baseband solutions available for our development and by leveraging and combining our internally developed multimedia technologies, power management and radio solutions, we will be able to offer a complete portfolio of solutions to our customers,” the Marvell chief told investors. “As we look over the competitive landscape, with the breadth of our internally developed technologies and those acquired from Intel, we are positioned to lead the cellular transition to 3G solutions.”
Sutardja specifically mentioned products such as smart phones, PDAs, Voice over Internet Protocol phones and media players. Intel had already managed to supply chips for Motorola’s Q smart phone, RIM’s BlackBerry 8700 and the Palm Treo, among others. Now, Marvell will “aggressively invest” in the integration of the various technology pieces to extend its success into the consumer electronics space.
According to Stuart Robinson, director of the handset component technologies service at Strategy Analytics, “Marvell has a good track record in the fabless chip business. It can supply high volume consumer chips profitably, despite aggressive price pressure. Marvell now commands two ARM-based designs, its existing Feroceon and Intel’s XScale, giving it greater potential to penetrate the 3G handset market.”
Will Strauss, principal at Forward Concepts, a consultancy that focuses on semiconductors, acknowledges that he is a personal friend and admirer of Sutardja’s. But he is also straightforward in assessing the challenges Marvell faces in not simply obtaining a robust ROI, but integrating the purchase into a future-oriented strategy that adds up to more than the sum of its parts.
“From a Marvell standpoint, it’s probably a reasonable buy, but not a super bargain,” Strauss said. “That’s because more effort and money will have to be invested by both parties to move the Intel chip designs over to a silicon foundry like TSMC [Taiwan Semiconductor Manufacturing Co.], and Marvell will have to complete the `Hermon’ baseband chip to bring it up to W-CDMA/UMTS capability.” For context, Strauss said, Broadcom paid $96 million to add W-CDMA/UMTS capability to its existing GSM/GPRS/EDGE product by buying San Diego-based Zyray. Marvell also will have to bulk up its Israel-based operations, where Marvell bought Galileo Technology Ltd., a LAN switch company, for $2.7 billion in 2000.
As for the up to 1,400 Intel employees who may transition to Marvell employment, Strauss said, “Everything I hear from people who’ve worked at Marvell is that the management expects results and delivery on time, and no excuses. I know the president, Dr. Sutardja, personally. He’s both a brilliant technologist and a shrewd businessman, so I expect Marvell to come out ahead in this deal.”
