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Are Marvell’s Strong Margins Converting into Increased Cash Flows?

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Aug. 18 2020, Updated 5:16 a.m. ET

Operating cash flow

Marvell Technology Group (MRVL) reported positive operating cash flow in the past eight quarters except in fiscal 1Q17, when it paid $750 million to settle the Carnegie Mellon University lawsuit. In fiscal 3Q17, the company generated operating cash flow of $121 million—its highest in seven quarters. Of this, the company returned $87 million to shareholders.

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Shareholder returns

The company has been paying a steady dividend of $0.06 per share for the past few quarters and continues to do so. This equates to $30.7 million in dividend payments. However, fiscal 3Q17 was a special quarter for shareholders as the company resumed its share buyback program after three quarters of no buybacks. During fiscal 3Q17, the company repurchased $56.5 million worth of shares.

Marvell’s new share buyback program

Marvell’s board has authorized $1 billion share buyback program, and it plans to complete 50% of the buyback over the next year. The $1 billion share buyback replaces Marvell’s earlier $3.25 billion stock repurchase program.

The company had already repurchased more than $3.2 billion worth of shares and was left with $115 million of repurchases. The new share buyback program indicates that the new management is confident about the company’s long-term growth prospects.

However, the company holds the right to suspend or discontinue the share buyback program at its discretion. Recently, Cypress Semiconductor (CY) and Analog Devices (ADI) suspended their share buyback programs to channelize their free cash flow to repay debt. However, debt is not a concern for Marvell as its cash reserves at the end of fiscal 3Q17 stood at ~$1.7 billion, and with zero debt.

This strong cash debt position gives the company the financial flexibility to take up long-term investments. One way Marvell may suspend its share buyback is if it reports low cash flows or finds a better investment opportunity, such as an acquisition.

Strong margins and the removal of its founders, however, have raised the eyebrows of many analysts. They are speculating that Marvell could be up for sale sometime in the near future.

In the next and final part, we’ll look at the possibility of Marvell getting acquired.

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