Focused on keeping product lines fresh
Semtech Corporation (NASDAQ:SMTC) is an analog/mix-signal product manufacturer competing in four end markets:
Its largest business, Communications, produces a range of offerings targeted primarily at telecom infrastructure applications, such as wireless base stations, routers, and hubs. It contributed 31% of total sales in fiscal 2013 (ended in January). Secondly, the High-End Consumer category is primarily composed of items incorporated in portable products, such as smartphones, tablets, and cameras. It was attributable for 29% of fiscal 2013 sales. Third, its Industrial and Other product line consists of automotive, military, aerospace, and medical applications, among offerings for certain growth markets. It contributes 25% of sales. Fourth, the Enterprise Computing division serves traditional computing-related markets, such as PCs, data centers, servers, gaming, copiers, and printers. It accounted for 15% of total sales.
A strong pipeline of new products, including 18 such launches in the April quarter, is driving sales and gross margin expansion. In fact, that measure is trending above 60% and is rising. Accordingly, earnings are expected to remain on a steady upward path.
Semtech Corporation (NASDAQ:SMTC) is looking at the long-term by way of investments in the expansion of wireless capabilities to new markets, as well as touch sensing, through auto, home, and medical end markets.
As such, I believe its focus on growing product markets will support further sales and margin improvements going forward. Earnings are likely to advance nicely as a result, and the impact of inventory glut should be limited.
Accordingly, I believe the shares are a buy for the long term at their current forward P/E of 11.6.
Innovator poised for an earnings rebound
Marvell Technology Group Ltd. (NASDAQ:MRVL) is a designer of high-performance application-specific products that predominantly serve three end markets:
Foremost, the Storage unit supplies the enterprise, consumer, desktop, and mobile industries with Drive Controllers and other offerings. It contributed 47% of total sales as of February, 2013. Second, its Mobile and Wireless business provides that industry with communications processors, thin modems, and connectivity solutions. Sales totaled 26% of the overall amount. Third, networking products produce offerings for new network architectures, such as cloud infrastructure and service provider infrastructure. Sales were 22% of last fiscal year’s (ended in February) figure.
Specifically, Marvell Technology Group Ltd. (NASDAQ:MRVL)’s wireless connectivity business ought to grow nicely, supporting a profit recovery over the back half of this year. It is introducing numerous products for growth product markets such as tablets, ultrabooks, gaming, and video. Maybe even more so than with Semtech Corporation (NASDAQ:SMTC), I expect sizable investments in R&D, of more than 30% of sales of late, to come to fruition.
