Marvell Technology (MRVL) shared some good news last night when they said in a press release here that the State Administration for Market Regulation of the People's Republic of China has approved the company's acquisition of Inphi Corporation (IPHI) .
It is no easy task to get a technology/semiconductor-related acquisition approved in China. Applied Materials (AMAT) is still waiting for the final word on its Kokusai Electric Corporation deal, and who can forget what happened with Qualcomm (QCOM) -NXP Semiconductors (NXPI) in 2018. Marvell's approval win should remove any concern that this acquisition would be delayed, if not rejected altogether. The biggest hurdle is over.
When Marvell first announced this acquisition back in October 2020, the company said it expected the deal to close in the second half of 2021. However, last night's announcement pushed up the completion date to April 2021, pending approval by Marvell and Inphi's stockholders at an April 15th special meeting, as well as the satisfaction of customary closing conditions. Management's ability to get the necessary approvals and move the deal's timeline up by months is a classic example of what we call "under promise, over deliver."
As for the transaction benefits, you can find the specifics in our Alert here and in the presentation here. The key facts are that this is a highly complementary deal that 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 additions, management expects the deal to result in $125 million in combined annual run-rate cost synergies within 18 months post-close.
Overall, we think transaction makes strategic sense as it furthers management's ongoing initiative to reposition the company's exposure to larger and faster-growing end markets. To this point, Inphi generates over 70% of sales from the 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%.
But what to do about the stock? MRVL has been volatile over the past month due to concerns about capacity constraints impacting the entire semiconductor industry and also rising interest rates fears. However, we think this news is too good to pass up because MRVL now has a catalyst (this acquisition) on top of a strong, multiyear secular growth story that is 5G deployments, Cloud, and Automotive Ethernet. We are upgrading our rating to a ONE.