Is The Jury Still Out On This Semiconductor Stock?

Chris Lau, Kapitall: Marvell Technologies failed to overturn a patent lawsuit, so where should investors turn if the company pays up?

Semiconductor stock  Marvell (MRVL) failed in a bid to overturn a billion dollar lawsuit. And to make matters worse, the presiding judge may order Marvell to pay out more than originally specified.

Carnegie Mellon University first won a $1.17 billion patent infringement suit against Marvell last year. The company appealed to the US District Court in Pittsburgh. But the federal judge declared the infringement to be willful, in what is now the fourth-largest patent ruling in the US to date.

Marvell is accused of infringing on the University’s patents for ways to detect data on hard drives, which the company allegedly incorporated into its chip technologies. Sales linked to these technologies generated roughly $10.3 billion over more than a decade.

Investment ideas

Considering the predicament Marvell is now in, perhaps there are other stocks investors should consider.

Marvell has a forward P/E of 19, higher than competitors like Broadcomm (BRCM) but below that of Cypress Semiconductor ( CY ), even after Cypress shares dropped recently.

The Cypress sell off may be due to a lowered outlook, as the company expects some weakness ahead. Cypress is experiencing weak demand from some of its mobile customers. The company cut its earnings forecast from $0.17 – $0.18 per share down to just $0.10 to $0.12 per share for the third quarter.

Click on the interactive chart below to see data over time. Sourced from Zacks Investment Research.

Broadcomm is down around 5% in the past week, due possibly to profit taking. Broadcomm was expected to be one of the suppliers for Apple’s iPhone 5S – and iFixit confirmed that the company supplies the WiFi, FM, GPS, and Bluetooth functionality for the smartphone. Apple sold 9 million 5S and 5C units alone during their first weekend on the shelves.

Read more about Apple suppliers like Broadcomm: Stocks to Watch as Sales of New Apple iPhones Soar

Marvell shares did not sell off substantially after the latest lawsuit news. Shares dropped around 6% on the week, but are up 63% in 2013. Some investors may not be worried, and could expect the company to settle. But shares could still face more uncertainty until the patent suit is officially resolved.


Written by Chris Lau, Kapitall contributor.