Marvell Tech: A Soft 4Q Ahead?

Zacks

Marvell Technology Group (MRVL) is set to report its fourth quarter 2013 results on Feb 21. In the prior quarter, the company posted a 6.7% negative surprise. Let’s see how things are shaping up for this semiconductor chip maker.

Growth Factors this Past Quarter

Marvell’s third quarter 2013 revenues missed its own guidance and were 17.8% down from the year-ago quarter. The year-over-year decline was mainly due to the macro-economic slowdown and a lackluster PC market, which badly affected chip demand. Revenues from all the end markets decreased on a year-over-year basis.

Higher commodity costs and an unfavorable product mix led to gross margin contraction. All these led Marvell to post earnings of 14 cents per share, which missed the Zacks Consensus Estimate.

Marvell provided a weak fourth-quarter revenue forecast citing weakness in the personal computer market, which will continue to affect its HDD businesses. But the guidance reflects some signs of improving networking and storage end markets. However, smartphone weakness and guidance cut at its largest HDD customers Western Digital Corp. (WDC) and Seagate Technology plc (STX) concern us.

Earnings Whispers?

The Zacks Consensus Estimate for the fourth quarter stands at 8 cents while that for fiscal 2013 stands at 60 cents.

Marvell posted positive surprises in the fourth quarter of 2012 and the first quarter of 2013 and negative surprises in the second and third quarters of 2013. This leads to an average positive surprise of 6.4% for the preceding four quarters.

No estimate revisions were noticed for both the fourth quarter and fiscal 2013 over the past 30 and 60 days. As a result, the Zacks Consensus Estimates have remained unchanged for the fourth quarter as well as for 2013.

The lack of estimate revisions signals that a very big surprise this quarter is unlikely. Moreover, the stock carries a Zacks Rank #3 (Hold).

We caution against stocks with Zacks Ranks #4 and #5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Our model states that a stock needs to have both a positive Zacks Earnings ESP (Read: Zacks Earnings ESP: A Better Method) and a Zacks Rank #1, #2 or #3 to beat earnings estimates. You could, therefore, consider stocks like:

Advent Software (ADVS), with Zacks Earnings ESP of +4.6% and Zacks Rank #1 (Strong Buy)

SanDisk Corp. (SNDK), with Zacks Earnings ESP of +1.6% and Zacks Rank #2 (Buy)

Autodesk Inc. (ADSK) with Zacks Earnings ESP of +15.8% and Zacks Rank #2 (Buy).

Read the Full Research Report on SNDK

Read the Full Research Report on MRVL

Read the Full Research Report on ADSK

Read the Full Research Report on ADVS

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