In a world where COVID-19 has moved from being a distant news, to a reality, to shaping our lives; where consumer confidence in certain industries is at its lowest levels since the 2007 financial crisis or the 2000 internet bubble, it is important that our investments are headed to industries that will perform regardless of today's turmoil. Two of these industries are 5G and data centers. Marvell Technology Group LTD (MRVL) is well positioned on both, and with an impressive 42.21% return YTD it makes you wonder where it could go?
5G footprint
Marvell is one of those companies that you don't know are in your everyday life until you realize they are. It is not secret that most equipments are interconnected, yet some experts say that we are just seeing the tip of the iceberg in terms of network and connectivity, and Marvell is positioned to be a major player in this transformation. The next step for this field is the roll out of 5G technology, on which Marvell, quoting Jim Cramer, is "the front-runner". A very powerful statement from the Mad Money anchor, who has been very bullish about the company for quite sometime now. Why is this stock guru so certain that this particular company is well positioned to continue its excellent run?
Well, through acquisition of a couple companies and its own efforts the company has secured deals to place significant components across all major 5G systems distributors, with 79 5G deals closed. Marvell has gained relevance and worldwide footprint across multiple industries. A clear, relevant, example is the expected migration from Apple and Samsung of their top line products to 5G bands. The South Korea giant has already rolled it out for some of their new products, and the Cupertino brand is expected to announce its 5G migration on its yearly September Keynote. Indeed, they both will have Marvell components inside.
Data Centers
Despite being a 25 year old semiconductor company, they are still very agile and are able to adapt to new industries. One example is how well they have adapted to the data center and cloud business. It currently represents 37% of the company's total revenue, and with the world working from home, it has seen quite an upside in 2020. Right at the center of this growth is their DPUs or Data Processing Units, that goes in hand with the cloud to help companies leverage Marvell chips to process its data faster and in a more secure way. In order to also being able to process data faster they moved on from what we know as hard drives to near-line storage.
Automobile
Additionally and paraphrasing Matt Murphy, the company's CEO, they have been able to position themselves as a major supplier of parts for the Automobile industry. Their Ethernet product provides connectivity support for the cart digital parts that need connection. Already 16 different car OEMs, have signed agreements to use their components on new lines of cars. With 3 of them coming this year and the rest on 2021, successfully diversifying its footprint on the field.
Conclusion
Marvell is well positioned for continuous growth over the coming years with 5G, Data Centers and Automobile as main pillars. They have managed to diversify its distribution so well that when Huawei was banned by the US government, the company was able to take the hit on the chin and continue to grow. Note that the Chinese company was a very important player in Marvell's landscape. In addition, the company has a healthy balance sheet with good fundamentals. Their P/E ratio of 17.6 is better than the S&P 500 of 22.2, which is a hard to find indicator on a company that has a healthy growth. Lastly yet very important, Marvell's line of businesses rather than being affected by these times are being favored. Listening to Jim Cramer say that Marvell Technology Group is "the best pure play in 5G" might just make sense. I am expecting the stock to continue to rise after its August 27th earnings call.
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