What is the basis for Marvell’s restructuring program?
In an increasingly connected world, a huge amount of data will be generated from virtual reality, autonomous cars, smart cities, and wearables, and all this data will need to be moved, stored, and made accessible at high speeds. Marvell Technology Group (MRVL) Chief Executive Officer Matthew Murphy stated that Marvell’s strengths are in “storing, moving, and accessing data at high speeds.” Marvell is clearly targeting storage, networking, and wireless.
The next challenge for the company will be to make its business profitable. Murphy has identified areas where Marvell offered differentiated technology that will help it command a higher price and gain market leadership, focusing on the enterprise and the cloud data center markets.
But while knowing one’s strength is important, it is equally important to know one’s weakness, and so Marvell’s new management has identified areas where returns were not good and planned to discontinue those programs.
Notably, Broadcom (AVGO) has also divested its non-core businesses to streamline its operations in core markets.
Marvell’s first restructuring strategy aims to refocus its R&D (research and development) programs in growth areas that deliver strong returns, discontinue low or no profit programs, streamline engineering processes, and merge its R&D sites, which will lead to 900 job cuts. This should help the company reduce its annual operating expenses by $180 million to $200 million.
The R&D programs that the company plans to discontinue include its mobile, wireless, and other end markets, which accounted for 7% of revenue in fiscal 3Q17. While investments will halt, products that have longer life will continue to generate revenues for several years. To differentiate its core and non-core segments, the company will thus create a separate Others segment from fiscal 4Q17 onward and try to squeeze out as much profits as possible from existing products.
We’ll look at the second strategy in Marvell’s restructuring in the next part.