Monday, July 12, 2010

Marvell Technology Annual Shareholder Meeting (2010)

I attended Marvell Technology Group Ltd. (MRVL) annual shareholder meeting on July 8, 2010. I know many engineers (thank you, high school Chess Club), and whenever my engineer acquaintances discuss semiconductor companies, Marvell is mentioned in almost reverential tones. As a result, I was happy to be able to attend my first annual Marvell meeting, which took place at the Hyatt Hotel in downtown Santa Clara, California.

First, the food was wonderful. I appeared to be the only non-employee shareholder who attended, so I happily helped myself to Powerbars, yogurt, coffee, soda, mineral water, regular water, and fresh and dried fruit. Props to Hyatt Hotel for creating a great experience.

Prior to the meeting, I had watched an excellent documentary about America’s ascent to the moon, called In the Shadow of the Moon (2007). I was struck by the entire world’s rapt attention to America’s technological progress in the 1960’s. Today, although many Silicon Valley companies are generating major technological leaps and bounds, few laypeople follow such companies closely. It’s assumed that tech companies will continue to great the “next new thing," but such an assumption may be flawed. For example, NASA was able to propel America to the moon by using major taxpayer dollars and incentives. Perhaps the federal government's clean energy incentives will bear fruit eventually, but I still don't see Americans coming together on science and technology like they did during Kennedy's era.

In any case, Marvell didn’t look like it was used to having too many non-employee shareholders attend its annual meeting, but it graciously allowed me to ask a few questions and get some one-on-one time with the Chairman, President, and CEO Dr. Sehat Sutardja. Some interesting facts:

1. Marvell is “debt free and ended the year [fiscal 2010] with nearly $1.8 billion of cash” on its balance sheet.

2. Marvell’s founders continue to play significant roles. Dr. Sehat Sutardja (President CEO) is married to Weili Dai (VP of Sales) and is the older brother of Dr. Pantas Sutardja (CTO). Collectively, these three people own approximately 17% of Marvell’s outstanding common shares. (See 10K, page 31.)

3. For the year ended January 30, 2010, two customers accounted for a total of approximately 39% of Marvell’s net revenue. (See 10K, page 21.)

I noticed the customer concentration, so I asked how easily these top two customers could leave Marvell and go to a competitor. CEO Sutardja responded that Marvell’s products were highly differentiated, with numerous design wins, and Marvell works hard to make better products. He continued, saying that Marvell’s technology makes its customers successful, and when customers become successful, they become bigger. In short, we will be seeing “fewer but bigger customers in the long run,” which explains Marvell’s customer concentration. Dr. Sutardja also remarked that Marvell’s customers “can sleep well,” knowing that Marvell is doing everything it can to help make its customers successful.

I asked my usual question, “What do you see as your biggest challenges?” Dr. Sutardja remarked, “following Moore’s Law.” To summarize, the pace of modern technology is so fast, you must quickly innovate, or you will be left behind. While Coke and Pepsi can continue to rely on the same basic formula for decades, no technology company can stand still and expect to survive. As the CEO remarked, you can’t find a semiconductor company selling technology that’s ten years old. Basically, “if you sleep for 18 months, you are behind by a factor of 2, and if you sleep for 36 months, you are behind by a factor of 4.” In addition, newer generations of IC chips will have more circuits placed on them, making the IC chip design process increasing more complex. On the plus side, if a technology company is successful, other companies tend to buy products from companies with proven track records–another reason for Marvell’s success.

Disclosure: I own an insignificant number of Marvell (MRVL) shares.

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