Broadcom Vs. Marvell: Better Chipmaker Company To Buy (NASDAQ:AVGO)

In our previous analysis of Broadcom Inc (NASDAQ:AVGO), we analyzed the company’s infrastructure software segment with the acquisition of CA and Symantec, and expect the company to leverage its common enterprise customer base. We projected its revenue to grow by 7.05% in 2022. Moreover, we examined its Brocade segment as it introduced its next-gen fiber channel product and projected its growth rate at 10.3% in 2022. Lastly, we analyzed its superior infrastructure software segment profitability (69.8%) and believe its margins could benefit from the integration of its acquisitions.

Meanwhile, our previous coverage of Marvell Technology, Inc (NASDAQ:MRVL) looked into the acquisition of Innovium, and we believed it could support its data centre segment and compete against Broadcom in the data centre switch ASIC market with a share of 29% and estimated a revenue contribution of 2.9% in 2023. Moreover, we examined its ASIC products for 5G and ranked it to be the leader in terms of performance with a forecasted growth rate of 28.8% in 2022. Finally, we looked into its automotive segment which was its smallest (3.9% of revenue) and believed its growth to be supported by the growth of automotive ethernet with a forecast of 32.3% in 2023.

In this analysis, we compared the two companies as both of their networking business segments are the main contributor to their revenues. According to Broadcom’s annual report, the company’s networking segment includes ethernet switching and merchant silicon, embedded processors, SerDes ASICs, PHY transceivers and fiber optics. On the other hand, Marvell’s networking portfolio includes ethernet solutions such as switches, processors, and custom ASICs.

However, we believe their revenue segment breakdown does not clearly illustrate their differences. In order to compare these companies’ products, we segregated them into the main semiconductor product categories which are memory, logic, and DAO. We then categorized its main products into key product groups such as ethernet switches, ASICs, and processors under their logic semiconductors as well as optics, fiber channel, and other analog products to analyze and determine which company has a competitive advantage. Based on the data from WSTS, we calculated Marvell’s logic and analog semiconductor market share of 1.3% and 3.1% respectively. On the other hand, we calculated Broadcom’s market share as higher than Marvell at 6.2% (logic) and 16% (analog).

Lastly, we analyzed the M&A strategies of both companies to determine which company has a stronger M&A strategy. Firstly, we examined its M&A revenue contribution to its total revenue and its growth. Then, we compared the company in terms of their average FCF margins and financial position to determine which company is more well-positioned for future M&A activities.

Logic Semiconductor Product Comparison

To compare the two companies in terms of their logic semiconductor products, we looked into 3 main product categories of both companies which were Ethernet Switch, ASICS, and embedded processors.

Ethernet Switch

The ethernet switch market is forecasted to grow at a CAGR of 2.6% according to 360 Research Reports from $3 bln in 2020 which is 2.6% of the total logic semiconductor market. Marvell had acquired Innovium, which specialized in ethernet switches and competes against Broadcom with a market share of 23% in 50G SerDes switches compared to Broadcom’s 76% market share for this product. Moreover, to compare the company’s switch products, we compiled the number of ethernet switch products from Broadcom and Marvell as well as their performance measured by the max data transmission rate of their products.

Ethernet Switches	Broadcom	Marvell
Market share	76%	23%
Number of Products	4	3
Max data transmission rate (Tbps)	25.6	25.6

Source: Broadcom, Marvell

From the table, Broadcom and Marvell have nearly the same number of products but Broadcom edged out Marvell with more products with its Jericho, Trident and Tomahawk product families, while Marvell only has its Prestera product line as well as products acquired with Innovium’s Teralynx portfolio. In terms of performance, the max data transmission rate for both products is the same (25.6Tbps). Overall, we believe Broadcom has an advantage over Marvell with its market share dominance and larger portfolio breadth.

ASICs

Furthermore, both Broadcom and Marvell compete in the ASIC market. The ASIC market is forecasted to grow at a CAGR of 8.71% according to Research and Markets. JP Morgan (JPM) estimates Broadcom’s share at 35% making it the market leader. According to its CEO, the company’s custom ASICs target its hyperscale cloud customers for workloads related to machine learning and AI. On the other hand, Marvell announced its custom ASIC offerings for 5G, cloud data centers and enterprise and automotive applications. According to Marvell, it targets its ASIC products for Wired Networking, Cloud Data Centers, and Wireless Networking. Besides increasing its SerDes to 112Gbps, it also integrated Search/Packet Processing/Ethernet, Die 2 Die, chiplets, PHY, and advanced Interconnect capabilities.

ASICs	Broadcom	Marvell
Process Node	16nm	3nm to 14nm
SerDes performance	56 Gb/s	1Gbps to beyond 112Gbps
Applications	High-speed computing, networking and storage	5G, cloud data centers and enterprise and automotive

Source: Broadcom, Marvell

Based on the table, Broadcom’s ASICs are based on 16nm nodes in comparison to Marvell’s products which have 3nm as its most advanced. Also, Marvell edges out Broadcom in SerDes performance with a maximum SerDes of 112Gbps compared to Broadcom which has half of that. Though, Broadcom claims to have shipped 350 mln embedded SerDes channels while Marvell had shipped over two thousand chips. Thus, we believe Marvell to have an advantage over Broadcom in ASICs.

Processors

Besides that, we compared the company in terms of their processors. Broadcom’s embedded portfolio includes its StrataGX processors for high-performance, low-power and costs IP communications products. Whereas Marvell features its Armada family. According to IMARC, the embedded processor market was $21.1 bln in 2020 with a forecasted CAGR of 7% through 2026. To determine whether Broadcom or Marvell has an advantage for its embedded processors, we compared its StrataGX and Armada chips by their performance in terms of their CPU, L2 Cache, and memory interfaces.

Company	Broadcom	Marvell
Processor Line	StrataGX	Armada
CPU	dual ARM Cortex-A53 up to 1.2 GHz	Dual Core up to 2.0GHz
L2 Cache	256 KB	1MB
Memory Interfaces	16-bit	16/32 bits

Source: Broadcom, Imarc Group, Marvell

Based on the table, Broadcom edged out Marvell in terms of performance by all metrics with a higher CPU performance, L2 cache and memory interfaces. We believe this indicates Marvell’s technological advantage for its embedded processors over Broadcom. Also, the company had a 5-year revenue CAGR of 14.2% which is higher than Broadcom at 12.8%. Thus, we believe this could provide Marvell with an advantage in processors.

Overall, we believe Marvell slightly edges out Broadcom with a greater advantage Broadcom in terms of their logic semiconductor comparison of its ASIC and embedded processor technological advantage but Broadcom edging out Marvell in ethernet switching.

Factor	Advantage
Ethernet Switch	Broadcom
ASICs	Marvell
Processors	Marvell
Overall	Marvell

Source: Khaveen Investments

Analog Semiconductor Comparison

To compare the two companies in terms of their analog semiconductor products, we looked into 3 main product categories which were optics products, fiber channel and other analog chips.

Optics Products

Besides that, we compared the company’s optics products based on their market share of optical transceivers by Yole Development.

Optical Transceivers	Broadcom	Marvell
Market Share	6%	Less than 2%
Port (‘max’)	800G	800G

Source: Broadcom, Marvell, Yole Development

Based on the market share, Broadcom has a higher market share than Marvell in optical transceivers. The market was forecasted by Yole Development to grow at a CAGR of 14% through 2026 from $9.6 bln in 2020. Recently, Broadcom had also announced its new 100G/lane optical PAM-4 DSP PHY. Though, Marvell had also announced its Alaska A PAM4 DSP product family with support up to 800G. Thus, we believe that Broadcom has an advantage over Marvell in optics due to its larger presence and similar technology.

Fiber Channel

In storage, Broadcom competes against Marvell in FC SAN and dominates this market with a 75% market share compared to Marvell at third with a share of 8% according to Omdia. To compare the company’s fiber channel products, we compared them in terms of their FC HBA in terms of their number of product lines to determine which has a wider product breadth and performance in terms of Gigabit Fiber Channel.

Company	Broadcom	Marvell
Market Share	75%	8%
Number of Product Lines	5	5
Gigabit Fiber Channel (MAX)	64	32

Source: Omdia, Broadcom, Marvell

Based on the table, both Broadcom and Marvell have the same number of product lines at 5 each. However, in terms of performance, Broadcom’s FC HBAs have a higher GFC than Marvell’s products which indicates its performance advantage.

Other Analog Products

Lastly, we compared Broadcom and Marvell’s other analog products to determine which has a more diversified analog product portfolio including RF semiconductors, memory controllers and nearline HDDs.

Company	Market Size ($ bln)	Forecast CAGR	Broadcom	Marvell
RF	17.4	8.5%	Yes	No
Memory Controllers	2.84	7.7%	No	Yes
Nearline HDDs	50.2	5.2%	Yes	No

Source: Broadcom, Marvell, Markets and Markets, 360 Research Reports, Maximize Market Research

Broadcom’s RF products businesses for customers such as Apple (AAPL), its largest customer (20% of revenue). Moreover, Broadcom also has nearline HDDs for its enterprise customers. As covered in our previous analysis, Marvell’s Storage segment products include memory controllers where it had a 41% market share with a long-standing relationship with key HDD customers such as Western Digital (WDC), Toshiba (OTCPK:TOSBF) and Seagate (STX) (33% of revenue). Overall, Broadcom has exposure to more analog product markets than Marvell which we believe highlights its diversified business advantage.

Overall, with an advantage across optics, fiber channel and other analog products, we believe that Broadcom edges out Marvell.

Factor	Advantage
Optics Products	Broadcom
Fiber Channel	Broadcom
Other Analog Products	Broadcom
Overall	Broadcom

Source: Khaveen Investments

M&A Strategy Comparison

To compare the two companies in terms of their M&A Strategies, we looked into 3 factors which were their M&A revenue contribution and the sustainability of their strategies by analyzing their financials in terms of FCF margins, net debt and interest coverage ratios.

M&A Revenue Contribution

To compare their M&A contribution, we compiled the total M&A revenue for the past 10 years and calculated the % of M&A Revenue Contribution for both companies. For Broadcom, we examined a total of 13 acquisitions and 6 acquisitions for Marvell in the past 10 years.

Broadcom M&A Revenue ($ mln)	2012	2013	2014	2015	2016	2017	2018	2019	2020	2021
Total Broadcom M&A Revenue	419	9	299	450	2,346	0	4,240	9,744	0	35
Total Broadcom Revenue	2,364	2,520	4,269	6,824	13,240	17,636	20,848	22,597	23,888	27,450
Growth %		7%	69%	60%	94%	33%	18%	8%	6%	15%
M&A Broadcom Revenue Contribution	17.7%	0.4%	7.0%	6.6%	17.7%	0.0%	20.3%	43.1%	0.0%	0.1%
Total Broadcom Revenue Growth %		7%	69%	60%	94%	33%	18%	8%	6%	15%
Marvell M&A Revenue ($ mln)
Total Marvell M&A Revenue	1.13	0	0	0	0	0	603.3	120.8	500	720
Total Marvell Revenue	3,169	3,404	3,637	2,603	2,301	2,409	2,866	2,699	2,969	4,462
M&A Marvell Revenue Contribution	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	21.1%	4.5%	16.8%	16.1%
Total Marvell Revenue Growth %		7%	7%	-28%	-12%	5%	19%	-6%	10%	50%

Source: Broadcom, Marvell, DNB, ZoomInfo, Khaveen Investments

Based on the table above, Broadcom’s average M&A revenue contribution as a % of total revenue was 13.9% in the past 10 years. In comparison, Marvell had a lower average M&A % contribution to total revenue at 5.9% which highlights the higher revenue contribution from its M&A activities. Furthermore, Marvell had a 10-year average organic revenue growth which excludes acquisitions of -2.2% which was lower compared to 12.4% for Broadcom. Also, Broadcom had a higher average M&A revenue growth (22.1%) than Marvell.

In addition, we calculated Broadcom’s average M&A revenue as a % of total revenue growth at 54% compared to Marvell at 33% on a 10-year average. Overall, we believe Broadcom has a stronger M&A strategy as its revenue contribution from M&A, average M&A revenue growth and M&A revenue share of % total growth higher than Broadcom.

M&A Revenue	Broadcom	Marvell
M&A revenue as a % of total revenue	13.9%	5.9%
Organic Revenue Growth	12.4%	-2.2%
M&A Revenue Growth	22.1%	8%
Total Growth %	34.5%	6.2%
Average M&A revenue share % of total revenue growth	54%	33%

Source: Broadcom, Marvell, Khaveen Investments

Cash Flows

Additionally, we compared Broadcom and Marvell in terms of their cash flows by their FCF margins in the past 5 years and 10 years.

Comparison of Cash Flows	Broadcom (Including M&A Cash Flows)	Marvell (Excluding M&A Cash Flows)
FCF Margin (5 yrs)	15.24%	12.85%
FCF Margin (10 yrs)	-3.24%	4.10%

Source: Broadcom, Marvell, Khaveen Investments

For Broadcom, its average FCF margins for the past 10-years which account for M&A as we believe it places a strong emphasis on its M&A strategy was lower than Marvell’s average FCF margins. Both Marvell and Broadcom’s cash flows have improved in recent years as their 5-year average FCF margins are higher than their 10-year margin. Compared to Marvell, Broadcom’s 5-year average FCF margin is higher than Broadcom. Thus, we believe Broadcom has a superior cash-generating ability compared to Marvell.

Financial Position

Lastly, we compared Broadcom and Marvell in terms of their financial position by their net debt as a % of market cap and interest coverage ratio to determine which has a better financial position.

Comparison of Financial Position	Broadcom	Marvell
Net Debt ($ mln)	37,332	1,328
Net Debt as % of market cap	15.9%	3%
Cash to debt ratio	0.25x	0.10x
EBITDA Interest Coverage	7.9x	9.6x

Source: Broadcom, Marvell, Khaveen Investments

However, we believe Marvell has less risk in terms of debt servicing as it has a relatively lower net debt as % of market cap as compared to Broadcom. Marvel also has a higher EBITDA interest coverage ratio.

Overall, we believe Marvell has a greater advantage than Broadcom in M&A as its revenue contribution was higher and has a stronger financial position despite Broadcom having better cash flow generation abilities.

Factor	Advantage
M&A Revenue Contribution	Broadcom
Cash Flow	Broadcom
Financial Position	Marvell
Overall	Broadcom

Source: Khaveen Investments

Risks: Customer Concentration Risks

Both Marvell and Broadcom have large customers with more than 10% of revenues. Marvell’s largest customer is Wintech, a distributor which accounted for 13% of revenue in 2021. On the other hand, Broadcom’s largest customer is Apple which represented 20% of its total revenue. According to Bloomberg, Apple is believed to be focusing on moving production in-house for wireless components sourced from suppliers including Broadcom and Skyworks (SWKS). Previously, Apple shifted from semicon suppliers such as Intel to develop its own Arm-based chipset for its Mac and iPads. We believe this could pose a threat to Broadcom’s revenue growth outlook as Apple shifts towards a more independent supply chain. We believe Marvell could have an advantage over Broadcom as its business with Apple is not as significant relative with Broadcom.

Valuation

Broadcom

For our valuation, we updated our revenue projections from our previous analysis.

Broadcom Revenue Projections ($ mln)	2021	2022F	2023F	2024F	2025F	2026F
Semiconductor Solutions	20,383	22,043	23,839	25,780	27,880	30,151
Semiconductor Solutions Growth %	18.05%	8.15%	8.15%	8.15%	8.15%	8.15%
Infrastructure Software	7,067	7,622	8,221	8,869	9,570	10,329
Infrastructure Software Growth %	6.74%	7.85%	7.87%	7.88%	7.90%	7.92%
Total Company	27,450	29,665	32,060	34,650	37,451	40,480
Growth %	14.9%	8.1%	8.1%	8.1%	8.1%	8.1%
M&A Related Revenue Growth %		1,327	1,327	1,327	1,327	1,327
Total	27,450	30,991	33,386	35,976	38,777	41,806
Total Growth %	14.9%	12.9%	7.7%	7.8%	7.8%	7.8%

Source: Broadcom, Khaveen Investments

We valued the company with a DCF valuation as we expect it to continue having positive FCFs going forward. Our terminal value is based on the average chipmaker EV/EBITDA of 18.44x.

Based on a discount rate of 8.3% (company’s WACC), our model shows an upside of 24% for Broadcom.

Marvell

Furthermore, we updated our revenue projections for Marvell from our previous analysis with full-year FY2022 results.

Marvell Revenue By End Markets ($ mln)	2022	2023F	2024F	2025F	2026F
Data Center	1,784	2,168	2,664	3,227	3,938
Growth %	71.4%	21.5%	22.9%	21.1%	22.0%
Innovium Revenue		150	184.3	223.2	272.4
Growth %			22.9%	21.1%	22.0%
Carrier infrastructure	820.4	1,006	1,223	1,475	1,764
Growth %	36.8%	22.60%	21.6%	20.6%	19.6%
Enterprise Networking	907.7	1,067	1,254	1,474	1,732
Growth %	42.7%	17.53%	17.53%	17.53%	17.53%
Consumer	700.0	734.3	770.3	808.0	847.6
Growth %	21.8%	4.90%	4.90%	4.90%	4.90%
Auto/Industrial	249.6	330.2	433.6	565.0	730.5
Growth %	111.5%	32.30%	31.30%	30.30%	29.30%
Total	4,462	5,455	6,529	7,772	9,284
Total Growth %	50.3%	22.3%	19.7%	19.0%	19.5%

Source: Marvell, Khaveen Investments

Based on a discount rate of 9.2% (company’s WACC), our model shows an upside of 28% for Marvell.

Verdict

Factor	Advantage
Ethernet Switch	Broadcom
ASICs	Marvell
Embedded Processors	Marvell
Logic Semiconductor Overall	Marvell
Optics Products	Broadcom
Fiber Channel	Broadcom
Other Analog Products	Broadcom
Analog Semiconductor Overall	Broadcom
M&A Revenue Contribution	Broadcom
Cash Flow	Broadcom
Financial Position	Marvell
M&A Strategy Overall	Broadcom
Valuation	Marvell
Overall	Broadcom

Source: Khaveen Investments

To conclude, we compared Marvell and Broadcom in terms of their semiconductor businesses. For the logic semiconductor comparison, we compared their portfolios of ethernet switches, ASICs and embedded processors and determined that despite Broadcom’s superior ethernet switch business with a 76% market share, we believe Marvell has a technological advantage in ASICs and processors. Furthermore, we compared their analog products such as optics and fiber channel where we determined that Broadcom is superior with its larger market share and superior product portfolio breadth. Also, we believe it has a more diversified business as it has an RF and nearline HDD business whereas Marvell only has storage controllers. Lastly, we compared their M&A strategies and determined that Broadcom had a superior strategy with a higher M&A revenue contribution to total revenue of 11.3% and M&A revenue as a % of total revenue growth of 54.3%. Besides that, we analyzed its cash flows with higher adjusted FCF margins than Marvell (34.53%) but higher net debt as a % of market cap (16.3%) and lower interest coverage (7.9x) than Marvell.

All in all, we believe both companies are good with a Buy rating on both, but believe Broadcom edges out Marvell with a better executed M&A strategy and analog business.