Who might Marvell merge its mobile business with?
Even with the departure from the global market of major chip vendors ST-Ericsson, Renesas Mobile, Broadcom, Nvidia, the survivors, including Qualcomm, MediaTek and Samsung, are suffering from intense price competition — while also looking forward grimly to “weaker demand” for smartphones.
With the prospect of a shrinking market, Qualcomm last month announced that it will lay off 15% of its employees — about 4,700 people. MediaTek last week pared its expectations for 2015 as a result of weaker demand for smartphones and stronger price competition for handset chips.
Against that backdrop, Marvell Technology is back in the rumor mill.
The Santa Clara, California-based company has been reportedly toying with the idea of selling control of its mobile chip business. The latest speculation, as reported by Bloomberg, is that Marvell has attracted interest from Chinese state firms including Leadcore Technology Co., and Shanghai Pudong Science & Technology Investment Co., (PDSTI).
According to the report, the two companies are weighing offers for Marvell’s mobile unit. Marvell reportedly values it at about $1 billion. “One option under consideration would see Marvell pool its wireless operations into a joint venture, with a Chinese buyer taking a majority stake,” according to Bloomberg.
The grapevine is ripe with merger/acquisition/JV scenarios for Marvell’s mobile unit. They range from a sale to a Chinese smartphone company to a joint venture that might involve Xiaomi. One popular rumor – a potential sale to Lenovo — was publicly denied by Lenovo’s CEO.
Meanwhile, Marvell CEO Sehat Sutardja, pressed by financial analysts about his willingness to explore potential strategic alternatives for the Mobile business unit, stated during the earnings call in February, “Anything that will bring the share value of a shareholder up is our responsibility to entertain and manage and look at all the different possibilities.” However, he added, “But for sure we are not backing off from this business.”
Regardless of how the deal is structured, Marvell’s search for suitors illustrates a dramatic change in the global smartphone business. Nobody seems winning big (except Apple). Even for a chip vendor with good, solid technology, it’s increasingly tougher to get fair value. Even more difficult is finding a buyer who not only appreciates your team, but has the ability to make the most of what you’ve already developed.
The irony is that the longer Marvell hangs onto its mobile division, which the company’s CEO said he isn’t dumping, the narrower the window appears to get.
Will Strauss, president of Forward Concepts, wonders if Leadcore, whose modems are now shipping in high volume in selected Xiaomi smartphones, would even need Marvell. “Other than perhaps for its many patents and skilled engineers in Shanghai,” he said.
Meanwhile, other Chinese fabless chip companies have already tied the knot with Marvell’s competitors. “Rockchip is tied in with Intel’s LTE modems, and Allwinner is tied in with Qualcomm’s,” said Strauss. “So that narrows the possibilities in China” for Marvell.
The industry chatter in China over Marvell’s mobile business remained quiet for a while, but it picked up after the Bloomberg report, according to industry sources in China.
While nobody is confirming anything officially, one Chinese mobile industry observer said the latest rumor is that “Datang, PDSTI and Marvell have signed an exclusive negotiation agreement,” under which they may establish a joint venture, and Marvell will keep some stock in the new venture.
The Chinese government’s appetite for semiconductor investment, combined with PDSTI’s track record, makes the proposed scenario plausible.
After all, PDSTI last year completed acquisition of Montage Technology Group, a Shanghai-based fabless chip vendor making analog and mixed-signal semiconductors. In 2013, Shanghai-based PDSTI lost an almost year-long bidding war for RDA Microelectronics against Beijing-based Tsinghua Unigroup.
Leadcore Technology, a fabless chip company wholly owned by China’s Datang Telecom Technology and Industry, is an intriguing candidate, considering its close ties with Xiaomi.
Under the deal, some in China are saying that Leadcore may be part of the joint venture, while others speculate that Xiaomi will be one of the shareholders.
(Source: Strategy Analytics)
Earlier this year, a Leadcore executive told EE Times that Xiaomi wants its own custom-designed processors to differentiate its products and control its destiny. Instead of building an in-house chip design team, Xiaomi partnered with Leadcore to source the technology. During the one-on-one interview, Leadcore VP Marshal Cheng said Leadcore is working with Xiaomi on “all three different levels — product, technology and patent.”
The drawback in combining Leadcore and Marvell’s mobile business is that “the price war among smartphone chips is already getting red hot,” according to one Chinese source. Further, the merger would probably require a year or more of reorganization, the source said.
In contrast, some in China are floating the idea of a Chinese handset vendor acquiring Marvell’s mobile unit. If not Lenovo, what about Coolpad, they ask. Once it starts expanding outside China, Coolpad could surely use some of Marvell’s patents.
Certainly, Marvell is no Qualcomm or MediaTek. Yet, its technology prowess shouldn’t be underestimated. Strauss noted, “Marvell is one of the few modem chip suppliers who have actually fielded LTE modems in shipping tablets (like some of Samsung’s) and a few cellphones, so they have excellent technical credibility.” But of course, so did Broadcom, Renesas Mobile, and ST-Ericsson, who couldn’t break into most of the high-end smartphone sockets, namely Apple and Samsung.
Strauss also noted that Leadcore is coming on strong with its LTE modems (based on CEVA DSP cores). Marvell’s LTE modems are based on the FRIO DSP core jointly developed by Intel and Analog Devices, he added. Part of the reason why Strauss doesn’t see the combination of Leadcore and Marvell as a good fit is that they don’t have compatible software.
To be clear, Marvell is seeing the company’s 4G LTE as a growth engine. In the latest Q2 financial call last month, Marvell’s CEO said:
Specifically in mobile, we continued to see growth across our customer base in 4G LTE and saw double digit sequential unit growth in Q2. During the quarter, we expanded our customer list from tier one OEMs to now include tier two OEMs. We expect new smartphone launches with our LTE solution in the coming quarters and are confident about holding a strong market position in China.
About the Author
Junko Yoshida is Chief International Correspondent, EE Times