What Does Marvell Technology Aim to Achieve through Restructuring?



Marvell’s restructuring plan at a glance

In the previous part of this series, we saw that Marvell Technology (MRVL) is undergoing an operational turnaround under the leadership of its new president, Matthew Murphy. In November 2016, the company announced its two-part restructuring plan under which it would slash 900 jobs, which equates to ~16% of its workforce of 5,500 employees.

Marvell Technology (MRVL) plans to complete its restructuring by the end of October 2017 and achieve total cost savings of ~$250 million.

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Refocus R&D expenses

As seen in the above graph, Marvell spends more than 30% of its revenue in R&D (research and development) as it pursues several R&D activities targeting a wide range of markets. In our view, it lacks a disciplined approach in assessing the returns on these activities.

The first part of the company’s two-part restructuring plan is to refocus its R&D expense. It plans to do so by bringing an end to the unprofitable R&D programs that do not fall under the company’s core product portfolio.

Next, it plans to consolidate R&D facilities to improve efficiency. This would result in 900 job cuts worldwide. Texas Instruments (TXN) closed some of its manufacturing facilities to reduce overcapacity and improve efficiency. Marvell also aims to reduce its G&A (general and administrative) expenses by resolving all outstanding lawsuits.

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Divestment of non-core business

The second part of Marvell’s restructuring program includes the divestment of its non-strategic businesses. Although the company did not state which businesses were non-strategic, it stated that the divestment would reduce revenue by $100 million and operating expenses by ~$60 million, including a reduction in legal expenses.

NXP Semiconductors (NXPI) and Broadcom (AVGO) divested non-core assets to streamline its efforts in core businesses.

Marvell’s focus area

Marvell’s (MRVL) key focus area is storage and networking solutions for cloud and enterprises and it aims to expand in the automotive space. There is a possibility that the company may not divest its storage and networking business.

With the above efforts, the company aims to realize annual cost savings of ~$190 million. However, it would incur an annual restructuring charge of ~$90 million–$110 million, of which ~$35 million–$50 million would be in cash.

Marvell will discuss its restructuring plan in detail in its upcoming fiscal 3Q17 earnings call. Next, we’ll see how fiscal 3Q17 has been for the company and what figures it could post in its upcoming earnings.


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