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On Dec 27, Zacks Investment Research upgraded Marvell Technology Group Ltd. (MRVL - Snapshot Report) to a Zacks Rank #1 (Strong Buy). The upgrade came on the back of solid third-quarter 2013 results and positive estimate revisions over the last 60 days.

Why the Upgrade?

Marvell delivered decent third-quarter results which came ahead of the Zacks Consensus Estimate. Revenue contributions from the end markets were in line with the expectations. Also, continuous share buybacks were a positive.

The semiconductor company’s Storage business was positively impacted by strength in solid state drives (SSDs) and hard disk drive (HDD) businesses. Moreover, the company’s Mobile and Wireless end markets saw an uptick in revenues due to device launches by Marvell’s customers and higher number of unit shipments of W-CDMA and TD-SCDMA 3G products. These factors offset the disappointing revenue performance by its Networking business which was impacted due to soft demand from enterprise network market.

Going forward, we remain positive on Marvell’s diverse revenue model and stable balance sheet and expect the company to maintain its growth trajectory. However, sluggish macroeconomic conditions coupled with higher material costs and the company’s European exposure could pose as the near-term headwind. Competition from the likes of Intel Corp (INTC - Analyst Report), Texas Instruments Inc. (TXN - Analyst Report) and LSI Corp. (LSI - Analyst Report) further adds to the woes.

Nonetheless, the expansion of Marvell’s broad 4G LTE portfolio that would strengthen its position in China reinforced the optimism. This is expected to act as a tailwind for the company’s near-term financial performance.  

Moreover, the company has witnessed positive estimate revisions for the current quarter as well as for the fiscal year. During the last 60 days, there have been four positive and two negative estimate revisions. This, in turn, resulted in a 2-cent increase in Marvell’s fourth-quarter earnings estimate (current estimate stands at 18 cents).

Similarly, for the fiscal 2013, six positive estimate revisions were witnessed in the last 60 days which has resulted in a 10-cent increase in the earnings estimate for the current fiscal (current estimate being 70 cents).

These factors culminated in the Zacks Rank upgrade on Marvell shares.

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