Analysis: MRVL IPHI

On Thursday, before the open, Marvell Technology (MRVL)  announced a definitive agreement to acquire Inphi (IPHI) in a cash and stock deal in which Marvell pays $66 per share (using on hand and $4 billion of additional financing) and 2.323 shares of the combined company for each Inphi share. Upon closing of the deal, the new company will realize an enterprise value of roughly $40 billion as current Marvell shareowners will own ~83% of the combined company, while current Inphi stockholders will own the remaining ~17% of the combined company.

The deal is expected to be finalized in the second half of 2021, subject to shareholder and regulatory approvals. Notably, upon close of the deal, Marvell plans to reorganize that will result in the company being domiciled in the U.S. (something that could help with U.S. regulatory approval) rather than in Bermuda, where it is currently domiciled.

We believe this to be a highly complementary deal as it will result in Marvell combining its infrastructure semiconductor solutions with Inphi's cutting edge high-speed data movement technologies. The move will also provide Marvell the ability to double the number of its $100 million+ cloud & networking customers to eight over the next 1-2 years. In addition to the customer adds, management expects the deal to result in $125 million in combined annual run-rate cost synergies within 18 months post close.

Speaking during a conference call this morning to discuss the deal, CEO Matt Murphy commented that "Marvel's vision is to move store, process and secure the world's data, faster and more reliably than anyone else and this acquisition significantly accelerates the move element in our vision. The combined company will be the premiere enabler of high speed data movement which forms the connective fabric of our global data infrastructure and enables the data economy." Additionally, Murphy believes the deal "will be as transformational for Marvel in the cloud market as Cavium was for us in the 5G market."

"Today our solutions move big data fast inside and between cloud data centers and around the world in 5G and telecom networks. As Marvell and Inphi discussed our plans to combine, it became very clear that both companies share a similar vision to enable the massive increase in bandwidth and benefit from the long-term secular growth in data infrastructure moving to the cloud," added Inphi CEO Ford Tamer, who will be joining Marvell's board. "Inphi technologies provide the critical data movement interconnect between the three primary domains in thousands of data centers around the world; compute, storage and networking. All these functions are perfectly synergistic with Marvell's data infrastructure platform."

While shares are under pressure on news of the deal, we like the move and believe it in line with management's ongoing initiative to transform the company and reposition it to increase exposure to larger and faster growing end markets. To this point, Inphi generates over 70% of sales from cloud and 5G related sales, and the addition of this business is expected to increase Marvell's addressable services market from $20 billion in CY23 to $23 billion, bringing its compounded annual growth rate (CAGR) to 12% (up from the 9% forecasted during the investor day earlier this month).

Lastly, we note that with this release, Marvell provided preliminary 3Q21 guidance, with management expecting revenues of $750 +/- 2%, which at the midpoint was a tad short light versus the $751 million consensus. However, while this may be attributing to today's decline, we believe it near-sighted and view the action as an opportunity for those looking to gain exposure or reduce their cost basis. Inphi reported strong numbers with their own earnings release with record revenues, and the move will accelerate Marvell's growth while increasing exposure to the very crucial data center, cloud and 5g end markets.