By Matt Andrejczak, MarketWatch

SAN FRANCISCO (MarketWatch) -- Marvell Technology Group is flying high, thanks to a big bet it made two years ago to focus on chips used in consumer devices like portable music players, video games and mobile phones.

But since shares have climbed more than 60% since last summer, compared with a 9.3% decline for the Philadelphia Semiconductor Index, investors may be wondering whether the stock`s run can continue.

Bullish outlook

Among Wall Street analysts, the sentiment is bullish. Marvell (MRVL: news, chart, profile) shares are rated a buy, according to the consensus recommendation of 19 analysts polled by Thomson First Call.

That`s understandable, given recent news about the company.

Nokia, Motorola, Sony and Kodak all have launched new products -- or will later this year -- using a Marvell chip. The company`s products perform a wide range of jobs, including wireless connectivity and data storage capabilities in mobile phones, hand-held video games and digital cameras.

Later this year, Microsoft will ship its Xbox 360 featuring Marvell`s wireless chip.

And it isn`t just Marvell`s success in the consumer market that`s boosting its fortunes. The company is also benefiting from a relatively low cost structure because, unlike Intel or Texas Instruments, Marvell doesn`t manufacture its own chips; it merely designs them.

``They run the company well,`` said Shaw Wu, an analyst with American Technology Research who has a buy rating on the stock. ``It makes them a tough competitor.``

For every $100 Marvell makes in sales, it turns $25 in profit, Wu said. Compare that with Broadcom Corp., one of its top rivals for WiFi chips: Broadcom makes $17 in profit on $100 in sales, Wu said.

Margin concerns

Still, for all its success, the company faces challenges. Marvell`s push into consumer markets, which tend to be price-sensitive, will likely pressure its profit margin.

And updating all those different product lines could lead to higher product-development costs.

``There will be a lack of operating margin expansion,`` said Needham analyst Charlie Glavin. While he still believes Marvell is a good company, he is more cautious on the stock.

Unlike its past success in the corporate hard-disk-drive market, Glavin, who has a hold on the stock, said he foresees Marvell hitting more ``singles and doubles rather than homeruns.``

Still, executives at Marvell, which is incorporated in Bermuda but has its headquarters in Sunnyvale, Calif., are forging ahead with their plan to generate half of total revenue from consumer gear by the end of 2007.

It`s making progress toward that goal. In the first quarter, Marvell derived 25% of its sales from the segment, up from 15% at year-end 2004.

Marvell executives contend the company will be able to maintain a profit margin ranging from 23% to 26%.

``We have a tremendous amount of momentum,`` Chief Financial Officer George Hevey said in a recent conference call.

The company is seeing strong growth at a time when the broader semiconductor industry isn`t. Analysts expect Marvell`s revenue to leap 30% from last year, while total industry revenue is expected to be flat, according to industry group SEMI.

In the first quarter, Marvel`s earnings grew fivefold to $63.5 million. It also lifted its full-year financial targets, predicting sales will expand to a range of $1.57 billion to $1.61 billion.

Marvell was co-founded in 1995 by Sehat Sutardja, CEO; his wife Weili Dai, who is executive vice president; and his younger brother Pantas, 42, chief technology officer.

After going public in June 2000, Marvell overcame the ensuing technology slump. In the past four years, its sales have blossomed to $1.2 billion from $289 million.

How much momentum the company builds later this year and in 2006 in the consumer gear segment will depend on the success of several product launches.

Sony (SNE: news, chart, profile) launched its PlayStation Portable on March 24. The video game is fashioned with a WiFi chip that lets users play against each other. Nokia (NOK: news, chart, profile) plans to start selling its souped-up N91 mobile phone in Europe later this year. Marvell`s chips help run a small disk drive that lets users store more data like music and video.

The company also is banking on continued brisk sales of Apple Computer`s (AAPL: news, chart, profile) iPod music player for which its chip powers a small-form disk drive.

Playing underdog

Marvell has battled the odds before. Before it devoted more resources to the non-PC market, Marvell focused on the corporate market, churning out chips that converted analog to digital for disk-drive manufacturers.

When it entered that market, it ran up against the likes of venerable chipmaker Texas Instruments -- and prospered.

``Consumer markets can be difficult,`` said analyst Sandy Harrison of Pacific Growth Equities, which has an overweight rating on the stock.

For now, he said, Marvell ``deserves the benefit of the doubt.``