Citi Downgrades Intersil, Cuts Marvell Estimates On Poor PC Market

• Intersil Corp ISIL shares have climbed 6 percent since January 27, while shares of Marvell Technology Group Ltd. MRVL are up 4 percent.
• Citi’s Atif Malik now has a Sell rating for both the companies.
• Weakening PC fundamentals have resulted in a cautious view on semis, Malik stated.

Citi analysts have slashed their global PC estimates for 2016, reflecting weak demand and inventory build. This has resulted in a “cautious view” on semis. Analyst Atif Malik expects M&A to continue to be “a key theme” for small mid-cap semis in 2016. He added that Silicon Laboratories SLAB and Skyworks Solutions Inc SWKS are better positioned, due to their “higher top line growth potential and M&A appeal as buyers or sellers.”

Intersil

Malik downgraded the rating for the company from Neutral to Sell, while reducing the price target from $12 to $11.50. He mentioned that the company is estimated to have 20 percent PC exposure and sales of its computing related segment still exhibit a strong correlation with PC units.

“While ISIL is gaining content in Skylake and consumer products, we believe that the increased content will not significantly offset a continued decline in PC volumes,” Malik wrote, while adding that Intersil is likely to face revenue headwinds through 2016. The EPS estimate for 2016 has been reduced from $0.48 to $0.45.

The analyst expects revenue headwinds and low top-line growth to keep the company’s shares under pressure in 2016 and believes that the stock would be a “relative underperformer,” despite Intersil healthy margins and high dividend yields.

Marvell Technology

Malik maintained a Sell rating for the company and a price target of $7. The EPS estimates for 2016 has been reduced from $0.48 to $0.42 to reflect worse-than-expected PC unit growth and full restructuring impact from the mobile platform exit and operating expenses.

Marvell has about 60 percent PC exposure, and its storage sales, networking and mobile are expected to decline by 8 percent, 3 percent and 33 percent y/y in 2016.

Malik said that the events could continue to “get worse before they get better.” He enumerated the reasons as:

1. The current management team is unlikely to leave the company and may not agree to a sale of the company. This decreases the likelihood of a complete turnaround of the internal business practices and control environment.
2. Marvell’s internal audit committee has not completed its investigation and the company would then need to hire an external auditor. Hence, Marvell may be unable to meet the compliance deadline of March 8, and could apply for a second extension by NASDAQ and may not achieve compliance until September 2016.
3. Preliminary results for the December quarter could be weaker than expected due to share gains by a key competitor.