Are Broadcom and Marvell Better Off Together?

By Douglas A. McIntyre Published Jan 21, 3:47PM EST

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Broadcom’s (BRCM) stock dropped some when analysts speculated that it might not make components for the Apple iPhone (AAPL). Another tech company, Marvell Technology (MRVL) went up on rumors that it would supply parts. A day earlier, Broadcom’s stock was up on speculation that it would supply parts for the new phone.

Broadcom’s problems are broader than iPhone rumors.

The Los Angeles Times reported that the US Attorney and SEC are now looking into stock-option dating issues involving Broadcom’s two founders.

Broadcom’s shares were $50 in March, but have fallen to under $30 recently.

Given Broadcom’s position in the set-top, cell phone, wireless and VoIP markets, it is a bit of a surprise that the stock has fallen so much, but Texas Instuments (TXN) and Qualcomm (QCOM) put price pressure on in some of these markets. And, according to Morningstar, the shares are expensive by a number of measurements compared with its peer group. These include price-to-earnings, price-to-book, and price-to-sales.

Although Broadcom’s earnings data has not been given to the SEC for two quarters, market analysts do not seeing Broadcom’s earnings growing in the later half of 2006. And, the company said that 2007 would not have spectacular growth either.

Broadcom announce earnings on February 8. If the news is bad, and the stock moves back toward its 52-week low of $22, the company may become an attractive acquisition. If the stock goes that low, Broadcom’s market cap would be $11 billion and the company has over $2 billion in cash. The company’s revenue run rate is about $4 billion.

The company that would probably gain the most in hooking up with Broadcom is Marvell. The company is smaller, but the market gives it a higher multiple because of its growth and improving profits. The two companies are in closely related segments of the chip market and a combination would probably benefit from a savings of $200 million a year from a combined cost structure.

Braodcom’s IP and anti-trust fights with Qualcomm seems to be going its way. That could add some value to its products and value of its intellectual property.

Two good companies. Depressed stocks. High cost structures.

Makes a marriage?

Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.

About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.