Mellanox Knocked Around, But Definitely Not Knocked Out

It’s not uncommon for elevated volatility and controversy to surround growth stocks, but Mellanox (MLNX) seems to get more than its share. It certainly doesn’t help that the company competes with heavy-hitters like Intel (INTC) and Broadcom (AVGO), nor has it helped that the company’s InfiniBand revenue (once the prime attraction of the story) has fallen off significantly. Add in elevated spending concerns, and it has been a bumpy ride for shareholders.

That bumpy ride has also been relatively productive for shareholders recently. Between a well-known activist shareholder taking a stake and management ratcheting down operating expenses, the shares have shot up this year and finally started outperforming the sector again.

I liked Mellanox back in May of this year, but as things sit today, I think most of the remaining value lies in the extent to which Mellanox attracts solid M&A attention and/or provides credible visibility to renewed InfiniBand growth. The stock price already assumes mid-teens growth in adjusted free cash flow, but a buyout bid would likely start in the high-$60's, if not the $70's.

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Mellanox Knocked Around, But Definitely Not Knocked Out

Cavium Networks Back On Its Growth Path

I really can't complain about how Cavium (NASDAQ:CAVM) has done since my last article on the company, as the shares have risen almost 60% and outperformed a comp group that includes Broadcom (NASDAQ:AVGO), Intel (NASDAQ:INTC), Mellanox (NASDAQ:MLNX), and Qualcomm (NASDAQ:QCOM) - the best of which (Broadcom) is up about 45% since that positive early August write-up.

Cavium has done a lot to reassure the Street that it can drive meaningful organic growth with Octeon, Fusion-M, LiquidIO, LiquidSecurity, and Xpliant. While it still looks as though Cavium is hitting "singles and doubles" outside of Octeon, that's for the time being and there are credible growth acceleration opportunities in these smaller contributions. It's harder to make a positive valuation call today, but it's also hard to recommend stepping aside so long as beat-and-raise quarters are in play.

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Cavium Networks Back On Its Growth Path

Turbulence Creates Another Opportunity At Mellanox

If you like to trade, Mellanox (NASDAQ:MLNX) may be the stock for you, as there is more than average uncertainty and volatility around these shares as the company looks to benefit from growing adoption of high-speed connectivity products but also faces competitive threats from well-run rivals like Intel (NASDAQ:INTC) and Broadcom (NASDAQ:AVGO).

Although the company has been on an unfortunate run of weaker-than-expected quarters (and weaker guidance), the shares are still up about 15% from the time of my last article (ahead of Intel, weaker than Avago, and in line with the Nasdaq), and expectations have come down significantly. While the competitive threat of Intel still looks manageable, the last few quarters have highlighted that for all of the growth potential in Mellanox's core markets, that growth isn't going to come in predictable clockwork fashion. While I have gotten a little more cautious with my modeling, I still believe these shares are undervalued even with a double-digit discount rate.

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Turbulence Creates Another Opportunity At Mellanox

Qualcomm Seems Frustratingly Reactive

A little over a year ago, I thought Qualcomm's (NASDAQ:QCOM) valuation was potentially interesting, but I couldn't really recommend the shares due to margin erosion and what I saw as a lack of management initiative to make meaningful changes to grow the business. The shares are basically flat since then, due in part to ongoing worries about market share, pricing, and volume in handsets, as well as a lack of movement on the M&A front.

Really very little has changed regarding my outlook and feelings about Qualcomm. I think management's targets and goals for growth outside of handsets are exceedingly ambitious, and I think the royalty issues could linger on as a perpetual concern. I do find the prospect of major M&A to be interesting (most likely NXP (NASDAQ:NXPI)), though I stand by my comment last year that Nvidia (NASDAQ:NVDA) would have been a better long-term idea. While there is some value here, quite a bit of skepticism, and opportunities to do better, Broadcom (NASDAQ:AVGO) offers similar value and what I believe is a higher-quality business and management team.

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Qualcomm Seems Frustratingly Reactive

Cavium Networks Needs To Rebuild Its Growth Stock Cred

When I last wrote about Cavium (NASDAQ:CAVM), I was enthusiastic about the product launch and growth potential of this small(ish) semiconductor company, but very conflicted about the valuation and expectations. Since then, the company has offered up underwhelming guidance, a slower-than-expected launch of key new products, and a large acquisition that offers questionable value and a definite risk in how Cavium is perceived and valued.

The shares are only down about 12% from the time of that last article, but that's due in part to a strong rally off June/July lows. At the worst, the shares were down about a third in the intervening period. Looking ahead, I still have a lot of mixed feelings about this stock. I do genuinely believe that there is strong revenue growth potential in Octeon, Thunder, XPliant, LiquidIO, and LiquidSecurity and that Cavium delivers very good products for enterprise data center and service provider customers with high-end needs.

While I expect less from Cavium than I did before, the expectations are still robust, with near-term revenue growth above 20% and healthy long-term FCF margins. My new fair value(s) in the $50s offers upside, and there could still be a "disappointment discount" in the share price, but Cavium definitely needs to get back onto a "beat and raise" path.

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Cavium Networks Needs To Rebuild Its Growth Stock Cred

Seeking Alpha: Excellence Rewarded With Avago

I've been pretty bullish on both Avago and Broadcom (NASDAQ:AVGO) over the years and now that the merger is completed, nothing about this combination has really changed my mind. If anything, watching Avago's management more closely has led me to a greater appreciation of how they see the semiconductor world differently than most and how that informs their management choices. At an overly simplified level, this isn't a company that believes that success will come from pursuing growth for its own sake, but rather that strong margins generated by businesses with meaningful competitive advantages is the real key.

I continue to believe that fair value for the new Broadcom is in the neighborhood of $170, but that there could be some upside to the long-term underlying growth rate of around 5%. As a diversified chip company with tremendous scale and 40%-plus market share in multiple markets, I think Broadcom can still be thought of as a core tech holding, but it may be better to try to add shares when the enthusiasm cools a bit.

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Excellence Rewarded With Avago

Seeking Alpha: Cavium Still Navigating Lofty Expectations

As I recently wrote in reference to F5 (NASDAQ:FFIV), growth investors are unforgiving when growth erodes, and Cavium (NASDAQ:CAVM) shares have not done well lately as this chip company's revenue has continued to decelerate ahead of what bulls hope will be significant product ramps. While Xpliant, LiquidIO, and ThunderX could add about $2 billion to Cavium's addressable market relative to 2015, companies like Intel (NASDAQ:INTC) and Avago (NASDAQ:AVGO) are hardly pushovers and the adoption of ARM servers has been disappointing so far.

It takes ambitious growth expectations to support a fair value in the $60s and the company's margin prospects over the next couple of years really don't support a corresponding EV/revenue multiple. That said, Xpliant, LiquidIO, and ThunderX are really just getting started and the company could be in a position to exploit M&A-related disruptions in its sector. This is by no means a safe stock, or one with low expectations, but the company's technology offers high performance, programmability, and cost of ownership attributes that could grab meaningful share in markets that can support multiple billions in long-term revenue.

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Cavium Still Navigating Lofty Expectations

Seeking Alpha: Decision Time With Broadcom ... And Maybe With The Larger Sector

As the transaction with Avago (NASDAQ:AVGO) moves forward, Broadcom (NASDAQ:BRCM) investors have to make their decision on what to do with their shares. While shareholders may not ultimately get exactly what they want (the deal is subject to proration), they have the option to take cash, regular shares, or special restricted shares.

Investors are also looking at a changing semiconductor landscape. Barring any additional announcements before year-end, 2015 has already seen more than 25% of U.S. publicly-listed semiconductor stocks acquired or underway with being acquired. Given the rising cost of chip development, the low cost of debt and high cash balances at chip companies, and the opportunity to drive synergies, there may be more decisions like the Broadcom situation coming for investors.

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Decision Time With Broadcom ... And Maybe With The Larger Sector

Seeking Alpha: How Do You Solve A Problem Like Qualcomm?

Referencing a 56-year old song for the title of an article about a tech company is admittedly bizarre, but then so too is Qualcomm's (NASDAQ:QCOM) situation. The acknowledged leader in handset baseband and app processors, the stock is down about 25% over the past year, as weaker handset sales momentum and weaker margins have really started to bite hard.

Qualcomm is in the enviable situation of having a pretty darn good business in hand, as well as ample cash (and cash flow) to fund complementary or expansionary M&A. The question is whether the company has the courage (and/or vision) to risk the short-term wrath of investors in order to improve the long-term outlook. Although the company's valuation does stand out in an otherwise expensive crowd, I'm not so proud that I won't admit that I really don't know what to do about the shares.

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How Do You Solve A Problem Like Qualcomm?

Seeking Alpha: Cavium Networks Has The Right Exposures, But It's Priced Like It

Cavium (NASDAQ:CAVM) doesn't lack for ambition, as it is taking aim at Intel (NASDAQ:INTC), Broadcom (NASDAQ:BRCM), and Freescale (NYSE:FSL) (which is being acquired by NXP Semiconductors (NASDAQ:NXPI)) across a wide range of markets. On the plus side, the company's chips offer strong performance characteristics and look well-placed to exploit growing markets like base stations, cloud, and SDN. On the negative side, the stock's 40%-plus performance since my last article has mopped up the undervaluation I saw in the shares and the trade-off between expectations and valuation is less compelling.

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Cavium Networks Has The Right Exposures, But It's Priced Like It

Seeking Alpha: Unable To Find A Foothold, Marvell Keeps Sliding

One of the things I notice in the bullish arguments for Marvell (NASDAQ:MRVL) is that there's a lot of talk about the company's "strong IP" and the likelihood that an appeals court will overturn a $1 billion-plus patent judgment against the company. The trouble with that is that Marvell hasn't given anybody particularly strong reasons lately to believe that they can translate IP into sustainable market share and the patent judgment reversal (if that indeed happens) is a one-time event.

As is, it's hard to find a strong argument to buy and hold Marvell for its turnaround qualities. The storage business seems to be incapable of supporting sustained growth, and I think the company's Quixotic quest to remain a player in mobile is bleeding away value. Last and not least, I see no particular signs that networking chip companies like Broadcom (NASDAQ:BRCM) and Cavium (NASDAQ:CAVM) are, or should be, worried about Marvell's efforts in this market.

I do believe that ditching the mobile business could add $1.50/share in value relatively quickly and a substantial reduction in the patent award could add another $2/share. Those two events would be worth around a 20% return, but neither are certain. What's more, absent a better vision from management regarding what Marvell does (and does not) actually do well, it's hard to regard this as more than a trading candidate.

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Unable To Find A Foothold, Marvell Keeps Sliding

Seeking Alpha: Broadcom Still Undervalued, And With Cards To Play

While it has not kept pace with Cavium (NASDAQ:CAVM) or Avago (NASDAQ:AVGO) over the past year, Broadcom (NASDAQ:BRCM) has still made a good showing with nearly 50% increase in the value of its stock price (considerably better than rivals like Qualcomm (NASDAQ:QCOM), Intel (NASDAQ:INTC), and STMicroelectronics (NYSE:STM)). Better still for today's shareholders, the company has not gone as far as it can with its new focus on sustainable growth and lean operations.

The murky outlook for connectivity isn't going to resolve soon, as it's still unclear if growth in IoT applications like wearables and home automation will offset all but inevitable share loss in mobile handsets. On the other hand, Broadcom's opportunities in the networking space may yet be underestimated, particularly if new product introductions can coax more business out of Cisco (NASDAQ:CSCO). With a fair value in the mid-$40's to low-$50's, Broadcom isn't a striking bargain but still offers enough upside to be worth buying and/or holding.

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Broadcom Still Undervalued, And With Cards To Play

Seeking Alpha: Better Priorities Leading To Better Outcomes For Broadcom

Broadcom (NASDAQ:BRCM) has had to learn some hard lessons about growth for growth's sake. Chasing revenue growth for its own sake led the company to two sizable ill-fated (and overpriced) acquisitions, not to mention the fruitless investment of substantial monetary resources into the uncompetitive broadband business.

Chastened by its failures, Broadcom management has retrenched around its established strengths and reprioritized profitable growth. Lost, or at least obscured, in the fuss over baseband and the lingering concerns about wireless connectivity is a very strong business in switching and broadband, not to mention upside from IoT-oriented connectivity products. Broadcom isn't obviously cheap from a FCF perspective, but if Broadcom can deliver the margin improvements its management projects and if the company can stick to a Texas Instruments-like (NASDAQ:TXN) transformation, there could be long-term upside beyond $50.

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Better Priorities Leading To Better Outcomes For Broadcom

Seeking Alpha: Cavium Networks - Beat, Raise, Repeat

In a quarter that has turned sour for many semiconductor investors, Cavium (NASDAQ:CAVM) has come through again with a solid beat-and-raise performance. Cavium is still a small company with a pretty concentrated business, but the opportunity for purpose-built solutions for enterprise, data center, cloud, and broadband markets that also offer good cost and power tradeoffs is an attractive one. I don't really expect Cavium to stay out on its own for the long term, but I think the standalone valuation is still pretty appealing.



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Cavium Networks - Beat, Raise, Repeat

Seeking Alpha: Cavium Still Trying To Prove It Is More Than A Niche Specialist

Analysts and investors seem to be of two minds when it comes to companies with specialized or "niche" products. On one hand, these companies often have good market shares and strong margins, but at the cost of a smaller addressable market and the risk of competition from larger, generalist rivals. When it comes to Cavium (CAVM), there is still active debate as to whether the company's efforts to enlarge and expand beyond its specialized multi-core network processor market will pan out.

I guess I would call myself a cautious bull on Cavium. There is a large pool of potential revenue out there if Cavium can succeed in lower core-count markets and if new efforts like Neuron, Fusion, and Project Thunder gain share. It is not going to be easy, though, as few companies achieve long-term revenue growth in excess of 20% and Cavium will have to do so in the face of competition from Intel (INTC), Freescale (FSL), Broadcom (BRCM) and Qualcomm (QCOM). This is by no means a widows-and-orphans stock, but for readers looking for high-fliers, this is a name worth further due diligence.

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Cavium Still Trying To Prove It Is More Than A Niche Specialist

Seeking Alpha: Cavium Is Great, But So Are The Expectations

The annoying thing about watchlists and "waiting for pullbacks" is that you have to be ready and willing to pull the trigger when they do happen. More often than not, whenever a growth stock pulls back significantly and actually looks like it sports a reasonable valuation, there are numerous analysts out in print harping on whatever bad news drove the stock down in the first place.

That brings me to Cavium (CAVM), a very interesting specialty networking processor company. The market gave investors two cracks at this stock below $25 in just the last six months, and while I would not dismiss or ignore competition from Intel (INTC), Broadcom (BRCM), Freescale (FSL) and others, I believe Cavium is well-positioned to deliver some rather remarkable growth in the coming decade. The only problem is that most of the Street things so too now, and even robust growth expectations barely drive a fair value above today's price.

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Cavium Is Great, But So Are The Expectations

Investopedia: Broadcom Stumbles, But The Street Forgives

The next time Wall Street is fair will be the first time, but I imagine investors in some of the beaten-up tech stocks are looking at Broadcom (Nasdaq:BRCM) with a little envy or resentment. Although Broadcom's guidance for the next quarter was pretty soft, as the Street basically shrugged it off and gave the company/stock a pass. Broadcom enjoys tremendous support among sell-side analysts, but the company still looks like an appealing play on growth in the mobile/wireless, networking and home connectivity markets.

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http://www.investopedia.com/stock-analysis/2013/Broadcom-Stumbles-But-The-Street-Forgives-BRCM-QCOM-AAPL-FSL0205.aspx

Investopedia: Weighing The Improvements At LSI Against Industry Challenges

While it often helps to have strong end markets when trying to turnaround or improve operations, it isn't always a prerequisite. LSI Corporation (NYSE:LSI) management has done a pretty good job of reorienting this business towards better growth and margin, but key end markets like PCs and mobile carriers haven't been doing all that well of late. Consequently, LSI may yet be cheap enough for investors to see worthwhile gains from here if and when these markets improve

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http://www.investopedia.com/stock-analysis/2012/Weighing-The-Improvements-At-LSI-Against-Industry-Challenges-LSI-MRVL-CAVM-FIO0914.aspx

Investopdia: After A Reality Check, Cavium Looks Interesting Again

Any investor who wants to take a value approach toward tech stocks had best have some patience. While some quality stocks do give investors a chance to pick up shares at a reasonable chance, others only get affordable once the growth opportunities have largely gone away.

It seems unlikely that Cavium's (Nasdaq:CAVM) growth potential has left the building. Instead, this semiconductor company has seen the shares sell off sharply on a broad-based slowdown in its core enterprise and service provider markets. With relatively few technology peers and sizable addressable markets, this could simply be a lull in a long-term growth story.

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http://stocks.investopedia.com/stock-analysis/2012/After-A-Reality-Check-Cavium-Looks-Interesting-Again-CAVM-CSCO-FFIV-FSL0530.aspx

Investopedia: Has Analog Devices Made It Through The Worst?

In some respects, analog chips are the workhorses of the semiconductor world. When the chip market goes into its regular troughs, the analog makers like Analog Devices (NYSE:ADI) batten down the hatches, and prepare for a few quarters of sequential earnings decline before the inevitable stabilization and recovery. Although the global economic situation is precarious, Analog may largely be through the process of seeing order levels reset ahead of a recovery.

A Tough Close to a Challenging Year
There wasn't all that much good news in this fiscal fourth quarter for Analog Devices. Revenue fell 7% from last year and 6% from the preceding quarter. Sales were weakest in the industrial and communications categories, where both saw double-digit year-on-year declines. Sales to automobile manufacturers were quite strong, though, and sales to the consumer category were mixed - better from the fiscal third quarter, but down from last year.


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