Goldman Sachs Upgrades Marvell Technology, Removes From Americas Sell List

In a report published Thursday, Goldman Sachs analyst Mark Delaney upgraded the rating on

from Sell to Neutral, while raising the price target from $12 to $14. The downside expected for the company has already materialized. Marvell was expected to see risks related to ASP and marker share pressure in basebands, as well as impact on HDD controllers due to PC channel inventory, which have come to pass. In addition, the company lost share of the SSD controllers market. The consensus EPS projections for FY16 have been lowered by about 50 percent over the past seven months. The analyst believes that the FY16 Street expectation are more reasonable now. "Our HDD revenue assumptions imply that Marvell will under-grow the market this year and deplete inventory. In addition, China handset sales (a key end market for Marvell's mobile business) improved somewhat in May vs. April," Delaney stated. Also, investors seem to be increasingly shifting focus to free cash flow based valuation, which is favorable for Marvell. Another positive for the company is that recent M&A undertaken by competitors is likely to help pricing. "We believe investor focus now centers on two issues that are difficult to gauge: 1) Whether Marvell will find a strategic alternative for its baseband business (which we estimate is losing $0.20-$0.40 in EPS and is a $100-200 mn cash use). 2) Marvell's CMU lawsuit appeal," the Gold man Sachs report added.