Marvell sees turnaround for former Intel unit

Published: August 1, 2006, 9:00 AM PDT



Diversified chipmaker Marvell Technology Group said on Tuesday that it expects to turn around the loss-making communications unit it bought from Intel within one to two years.

In June, Marvell paid $600 million for Intel's communications processor business to gain a footing in the lucrative, but intensely competitive, cell phone market.

The unit makes and sells processors for high-end cell phones and personal digital assistants.

"A lot of people are focused on the losses from this acquisition, but this is an area we have zero concerns over, as we believe we can fix the problem fairly quickly, compared to the time it would take for us to develop this business, if we were to go into it ourselves and develop the technology from scratch," Chief Executive Sehat Sutardja told Reuters in an interview.

"We project it could take one to two years for us to turn around the unit, maybe sooner, but from an initial look at the problems, they are very, very manageable."

He added that Marvell would close the acquisition by the end of 2006 and that there would be some earnings dilution from the unit's losses on Marvell's next financial year, which ends Jan. 31, 2008.

Marvell designs microchips for hard-disk drives, wireless local-area network (WLAN) devices, power management systems and video game machines.

It then outsources the manufacturing of those chips to suppliers such as Singapore contract chipmaker Chartered Semiconductor Manufacturing and chip-testing and -packaging firm Stats ChipPac.

On Tuesday, Marvell said it would invest at least $63 million over the next five years in its Singapore facility, which would function as its regional headquarters.

The plant would house some chip assembly and test operations, its chip design team, sales and technical support. The company will also hire another 500 people in Singapore within that time frame, up from 200 currently. (*Check out: http://sg.vr-zone.com/?i=3855)

Indonesian-born Sutardja, who founded Marvell in California in 1995 with his brother, said the cell phone market would drive the company's growth in the medium term.

"There is a huge growth opportunity for us in the next several years, as this business we have acquired is larger than any other business we have entered into today, larger than the sum of our storage, networking and Wi-Fi businesses put together," he said. "Our goal over the next 10 years is to have our growth rate exceed the overall market growth."

But Sutardja dismissed suggestions by analysts that Marvell was buying revenues through its acquisitions and focusing on inorganic growth.

The Intel unit is Marvell's fourth acquisition in the past 12 months. It bought the printer semiconductor business of privately held Avago Technologies in February, UTStarcom's semiconductor unit in December, and QLogic's hard-disk and tape drive controller business in August 2005.

"The M&As done in the last few quarters are just opportunities that happened to come along. We do not have a strategy to focus on M&As--our strategy is to develop our technology in-house, but when we see opportunities that we cannot refuse, we will latch on to them," Sutardja added.

Sutardja said he gets dozens of calls from investment bankers but ignores most of the potential targets that they identify.

"I don't see many opportunities left in the market," he said.

Marvell's customers include Seagate Technology, Western Digital, Intel and Microsoft's Xbox 360 game console.

It competes with communications chipmaker Agere Systems, Texas Instruments, the largest maker of chips for cell phones, and Europe's top chipmaker, STMicroelectronics.