market folly

We're posting up notes from the Sohn San Francisco 2018 investment conference.  Next up is Michael McLochlin of Highland Capital Management who pitched a long of Marvell Technology Group (MRVL).


Michael McLochlin's Sohn San Francisco Presentation: Long Marvell Technology Group (MRVL)

•    There’s been a selloff in the semiconductor industry due to concerns of slowing global growth
•    End markets matter when it comes to semiconductor investing
•    Marvell operates in strong end markets – data centers and communications infrastructure which both benefit from high growth, average margins, average competition and high secular growth
•    Starboard got involved and took a large position; majority of board and senior management replaced.  Since then YoY revenue went from -15.4% to up 3%, gross margin improved 800 bps
•    Cavium Acquisition has improved their product offering
•    Four key reasons to own: Potential upside to estimates, Strong management team, Compelling valuation (thinks stock is a double), Multiple call options
•    Networking and storage are the two key end markets that Marvell plays in
•    Solid State Drives (SSD) will drive the majority of growth
•    Adoption of SSD growing in other areas (e.g. desktop, enterprise)
•    HDD – data center growth offsets decline in client use
•    Networking: Beginning of a multiyear growth phase for 5G and they have more components in 5G technology than 4G
•    Margin expansion opportunity: Gross margin has gone up 800bps, going forward – more opportunity for margin expansion
•    Management exceeding expectations and are strong capital allocators
•    Despite best of breed margin profile, valuation trading at a significant discount to peers
•    Some call options in the business like cross selling and product expansion that can drive additional upside
•    Risks?  Economic downturn, HDDs decline quicker than expected, Cavium underperformance, 5G spending slows down/delayed.  Mitigants: secular trends in end markets, data center growth offsets, strong management, faster ramp in 5g spending
•    Current price: $16.5 per share, upside to estimates = $5 per share, multiple expansion = $10 per share, giving price target of $31.5 per share.

Note that we also posted up notes on Jeff Smith's presentation (Starboard Value) on long Marvell (MRVL) at a separate conference as well.


Be sure to check out the rest of the Sohn San Francisco 2018 presentations.