Marvell's Intel Deal Creates Few Fans

"Strategic opportunities like this are rare," Sutardja told analysts in a conference call Tuesday morning. The acquisition, he said, gives Marvell all the pieces it needs to offer handset makers a complete platform for building advanced, 3G cell phones, a market he said will drive Marvell's growth for years to come.

But analysts and investors questioned how well Marvell would do with a business that's been such a laggard for Intel.

While Intel has achieved a few marquee customers in the smart-phone and PDA market -- notably Research in Motion(RIMM Quote), Palm(PALM Quote) and Motorola(MOT Quote) -- the company has had limited success selling the chips to the mainstream cell-phone handset market.

"Our caution stems simply from Marvell's ability to expand on INTC's limited success," wrote Stifel Nicolaus' Acree in a note to investors. Stifel Nicolaus makes a market in Intel and Marvell securities. The firm has provided noninvestment banking services to Intel within the past 12 months.

And Marvell will be competing against heavyweights like Qualcomm(QCOM Quote) and Texas Instruments(TXN Quote), both of which have deep connections with handset makers -- not exactly an easy market to penetrate.

According to Marvell executives, the reason the processors never took off at Intel was because they were capacity-constrained due to Intel's model of manufacturing them with older equipment. Marvell's plan involves gradually shifting manufacturing to a third-party foundry, TSMC, so that the chips can be produced with 65-nanomer circuitry, which will cut costs and increase output.

"A significant amount of the move from the current operating loss position ... to an accretive position is going to be based on volume expansion," said CFO George Hervey. "The good news is the customers have already been obtained to do that ramp. The design wins are there. It's now a matter of ramping the production to those levels."