Marvell To Boost Chip Designing Capability With Avera Buyout

Marvell Technology Group Ltd. (NASDAQ:MRVL) recently announced that it is acquiring GlobalFoundries’ chip design business, Avera Semiconductors, for a ceiling of $740 million. The deal is likely to be closed in January 2020.

The deal includes majority of Avera’s revenue base, design agreements with OEMs, and a supply agreement between Marvell and GlobalFoundries.

Marvell will initially pay $650 million in cash during deal closure. The rest $90 million will be paid in cash after Avera meets certain business goals agreed upon by both parties. The reprieve period will last 15 months.

Avera, which was earlier IBM’s Microelectronics business, was launched last year as the semiconductor designing arm of GlobalFoundries,

How Will Marvell Benefit?

Marvell expects the buyout to be significantly accretive to its top line by generating about $300 million for the full year after closing the deal.

Notably, the acquisition will bring chip design capabilities to Marvell’s existing technology, enabling it to develop a wider range of products. The company believes that that the buyout will help it to strengthen its position in the market for infrastructure semiconductor solutions.

Avera’s design experience in fields such as analog and mixed-signal and SoCs (system on a chip) for switches, routers and other devices, combined with Marvell’s technological expertise, will boost the latter’s business.

Acquisitions Drive Growth

Marvell is benefiting from its acquisitions spree. It had acquired Cavium last year for $6 billion, and the fully integrated business is projected to rake in approximately $200 million in revenues in fiscal 2020.

Moreover, earlier this month, the company announced the impending acquisition of semiconductor company Aquantia for about $452 million, in an attempt to boost its networking business.

Competition and Other Headwinds

Marvell faces significant competition from bellwethers, which is a constant concern for the company. Broadcom (NASDAQ:AVGO) is its main competitor as these two are the primary SoC suppliers. Also, NXP Semiconductors (NASDAQ:NXPI) , Qualcomm (NASDAQ:QCOM) and Texas Instruments (NASDAQ:TXN) offer various components to the market, making us increasingly anxious about growth prospects of Marvell.

Moreover, fall in demand for storage controllers due to factors like macroeconomic issues, reduction in cloud capital spending and CPU shortages, are affecting the storage segment’s results.

We expect that the strategic acquisitions being undertaken by Marvell will help it overcome these headwinds and boost top-line performance.

Marvell currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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