Marvell Technology shares jumped 23.3% Friday to a six-month high after the company late Thursday reported better-than-expected results, buoyed by strong sales of Wi-Fi chips and of 3G chips to a smart phone maker that appears to be Apple.
Other makers of wireless chips also rose, after Marvell (NasdaqGS:MRVL - News) pointed to "stronger-than-expected sales of 802.11N wireless connectivity devices" in its financial report. That's a technical name for the latest version of Wi-Fi. Broadcom (NasdaqGS:BRCM - News) shares rose 5.8% and Atheros Communications (NasdaqGS:ATHR - News) rose 3.2%.
After the close of regular trading Thursday, Marvell said its per-share profit, minus special items, rose 380% to 24 cents from 5 cents in the year-earlier period. For its first quarter ended May 3, Marvell said sales rose 27% to $804 million.
"You kind of had everything going the right way," said Jefferies & Co. analyst Adam Benjamin.
The company also credited cost cuts for its results. Marvell said its gross profit margin last quarter rose to 52% from 48.9% a year ago.
"We have been working hard to control expenses," Chief Executive Sehat Sutardja said in an interview Friday. "Last quarter's results were just the beginning of the payoff from the effort we have put in over the last two or three quarters."
On May 8, the company hit another high point by settling a Securities and Exchange Commission investigation into its stock-options practices. Marvell was one of dozens of companies investigated by the SEC. The settlement resulted in a $10 million fine. The company didn't admit to any wrongdoing.
"All the questions about the company and other stuff related to that investigation are behind them now," said Avian Securities analyst Avi Cohen. "Their gross margin was better and prospects remain very good."
In its earnings statement, Marvell also pointed to an "important milestone," the start of volume shipments of a communications chip for third-generation, or 3G, wireless "to a key smart phone supplier."
Analysts say Marvell chips will be in the next-generation, 3G iPhone that Apple is expected to unveil at its annual developer conference on June 9. Marvell declined to identify the smart phone customer, but an industry source confirmed that it is Apple. Marvell also sells chips to Research In Motion (NasdaqGS:RIMM - News), the maker of the popular BlackBerry smart phone.
Other Marvell customers include Microsoft (NasdaqGS:MSFT - News), for its Xbox game player, and Seagate Technology (NYSE:STX - News), for its hard-disk drives.
On Wednesday, Marvell named a new chief financial officer, Clyde Hosein. Previously CFO of Integrated Device Technologies, he starts on June 23, ending a yearlong search for a new CFO.
CEO Sutardja says Hosein is widely respected. "We've had an interim CFO, but we were looking for a long-term CFO that could build our infrastructure for the next phase of growth," Sutardja said. "We have been taking our time to hire the best person for the job."
Marvell plans to roll out some new products -- including some in a new market for the company -- on Tuesday. Analysts say the products could drive growth. The new arena is controllers for flash drives, also called solid state drives. Flash drives have started to replace hard-disk drives in laptop PCs.
Marvell is the leader in controllers for hard drives. Controllers, a type of chip, let a computer's microprocessor -- the " brain" of a computer -- communicate with the hard drive. Besides Seagate, Marvell also counts Western Digital (NYSE:WDC - News) among its disk-drive customers.
Sutardja says moving into the flash drive controller market positions Marvell for future growth.
"They (flash drives) will go into ultra-small laptops, ultra-mobile laptops," he said. "Those don't require a lot of storage capacity."
Sutardja says that while flash drives still cost a lot more than hard-disk drives, they can access data faster. Notebook PC makers are willing to pay more for the speed, he says.
Analyst Benjamin says Marvell's entry into this new market is a mixed blessing, because solid state drives could eat into sales of hard drives.
"But you could make an argument that solid state drives will increase the total amount of storage needed by enabling new, smaller handheld devices," he said. "It's debatable."
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