Must-know: AQR Capital Management’s 1Q14 positions

Part 5
Must-know: AQR Capital Management’s 1Q14 positions (Part 5 of 6)

Why AQR Capital liquidates position in Marvell Technology

AQR Capital and Marvell Technology

AQR Capital opened new positions in the quarter—the notable ones being Riverbed Technology Inc. (RVBD) and Nordion Inc. (NDZ). It sold off positions in LyondellBasell Industries (LYB), Marvell Technology Group (MRVL), and Vodafone (VOD).

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The fund disposed a position in Marvell Technology Group (MRVL) which accounted for 0.32% of its 4Q13 portfolio.

Marvell is a fabless semiconductor provider of high-performance application-specific standard products. Its core strength of expertise is the development of complex System-on-a-Chip (or SoC) devices, leveraging its technology portfolio of intellectual property in the areas of analog, mixed-signal, digital signal processing, and embedded and stand-alone integrated circuits. Its product offerings are primarily in three broad end markets: mobile and wireless, storage, and networking. Its broad product portfolio includes devices for data storage, enterprise-class Ethernet data switching, Ethernet PHY, mobile handsets, connectivity, and other consumer electronics.

Marvell sees fine over patent infringement

In March, 2014, Marvell lost a $1.54 billion lawsuit that alleged it infringed two hard disk drive patents owned by Carnegie Mellon University. On May 7, 2014, the court entered final judgment, from which the company filed a notice of appeal on May 14, 2014. News reports noted that while the penalty to be paid by Marvell is 31% above the $1.17 billion previously awarded by a jury, it’s lower than the $3.75 billion amount sought  by Carnegie Mellon.

Fiscal 1Q15 results topped expectations

Marvell said its net revenue for fiscal 1Q15 was up 30% to $958 million compared to the year ago quarter, driven by year-over-year (or YoY) growth in the mobile and wireless end markets, together with stable growth in the storage market. Generally accepted accounting principles (or GAAP) net income was $99 million, or $0.19 per share (diluted), compared with $53 million, or $0.11 per share (diluted), for the first quarter of fiscal 2014.

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Mobile and wireless revenue drives growth while networking sees softer demand

The company said it “saw strong growth from sales of products in our mobile market from multiple Tier-1 customers who have launched their 4G LTE smart phones in China based on our solutions.” It added, “We are seeing more OEM partners start new 4G LTE smart phone, tablet and mobile broadband device projects with our chipsets.” In North America, Marvell said it became fully certified for voice and data at AT&T in fiscal 2014 and saw the completion of LTE certification at Verizon. In fiscal 4Q14, Marvell said Samsung successfully launched their seven-inch Galaxy Tab 3 globally based on its dual-core platform and China Mobile has selected its dual-core platform to launch its first branded smartphone.

In wireless connectivity market, Marvell said its solutions are being used in new game consoles that were launched for the past holiday season. Its WiFi and Zigbee devices are gaining strong adoption in new IoT-type devices, home automation, and smart lighting applications.

In the storage market, Marvell noted that the overall drive industry seems to have stabilized. It saw higher hard-dish drive (or HDD) revenue, which was mostly driven by continued growth for its 500 gigabyte per platter products and increased demand for enterprise drives at a top North America based HDD customer. In addition, revenue for solid-state drive (or SSD) controllers increased significantly year-over-year.

In the networking market, Marvell said it experienced softer than expected demand in the first quarter of fiscal 2015 from some of its enterprise networking customers due to a weaker market overall.

For fiscal 2Q15, Marvell expects revenue in the range of $940–$980 million, and GAAP diluted earnings per share (or EPS) in the range of $0.21 plus or minus $0.02.

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