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Marvell (MRVL) to Post Q1 Earnings: Disappointment in Store?

Zacks Equity Research

Marvell Technology Group Ltd. MRVL is set to report first-quarter fiscal 2020 results on May 30.

The company surpassed the Zacks Consensus Estimate twice in the trailing four quarters, the average negative surprise being 3.79%.

In the last reported quarter, Marvell’s revenues increased 21.1% year over year to $745 million and surpassed the consensus estimate of $740 million, driven by strong performance of the networking business.

However, Marvell’s fiscal fourth-quarter non-GAAP earnings of 25 cents declined 21.9% from the year-ago quarter and missed the Zacks Consensus Estimate of 26 cents.

What to Expect in Q1?

Marvell projects first-quarter fiscal 2020 revenues of $650 million, subject to a change of about 3% up or down.

The company anticipates non-GAAP earnings per share in the band of 12-16 cents.

The Zacks Consensus Estimate for revenues is pegged at $650.2 million, indicating an increase of 7.53% from the year-ago reported figure. The consensus mark for earnings is 7 cents, projecting a decline of 53.13%.

Let’s see how things are shaping up prior to this announcement.

Factors at Play

Marvell is making strong progress in automotive, AI inference and cloud security with key design wins at several key customers. Demand from the wireless base station market is expected to boost revenues from embedded processors in the fiscal first quarter.

Marvell’s core switch, PHY and OCTEON family of high-end embedded processors are expected to sustain the uptrend in the to-be-reported quarter. The company’s automotive Ethernet business is also gaining traction.

Moreover, the Cavium business is expected to be accretive to the company’s top line in the to-be-reported quarter by attracting design wins.

The ARM server CPU business of the company is expected to continue its momentum with a number of cloud and high-performance computing customers qualifying the ThunderX2 processors. This evaluation process is expected to last another few quarters.

However, a 10% sequential decline in revenues is expected due to residual impact from the tight inventory control from customers, seasonality and persistent uncertainty in demand from China-based customers.

Notably, the fiscal first quarter is usually a weak quarter for storage end market.

Moreover, the PC market was sluggish in first quarter of calendar year 2019 after a dull phase over the last few quarters. Per Gartner’s preliminary data, PC shipments in the first quarter fell 4.6% year over year to 58.5 million units. Going by the IDC report, shipment dipped 3% on a year-over-year basis and totaled 58.5 million. This is likely to affect the demand for the company’s storage controllers in the quarter under review.

Revenues from networking are expected to fall in the fiscal first quarter.

The delay in talks of a trade deal between the United States and China, which continues to affect the overall chip industry, is likely to be an overhang on Marvell’s performance in the fiscal first quarter. This is because of the company’s significant dependence on semiconductor sales for revenues.

Competition continues to be a concern. Marvell faces significant competition from Broadcom AVGO in the Ethernet switches and Wi-Fi 6 space. Further, competition from the likes of NXP Semiconductors NXPI in the semiconductor products and solutions market is also a headwind.

Marvell Technology Group Ltd. Price and EPS Surprise

Marvell Technology Group Ltd. Price and EPS Surprise

Marvell Technology Group Ltd. price-eps-surprise | Marvell Technology Group Ltd. Quote

What Does the Zacks Model Say?

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Stocks with a Zacks Rank #4 (Sell) or 5 (Strong Sell) are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Marvell currently has a Zacks Rank #4 and an Earnings ESP of -3.75%.

Stock With a Favorable Combination

Here is a stock, which per our model, has the right combination of elements to post earnings beat this quarter:

Science Applications International Corporation SAIC has an Earnings ESP of +8.50% and carries a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

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