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Marvell (MRVL) to Post Q3 Earnings: What's in the Offing?

Zacks Equity Research

Marvell Technology Group Ltd. MRVL is set to report third-quarter fiscal 2020 results on Dec 3.

Marvell projects revenues of $660 million, up or down up to 3%. The Zacks Consensus Estimate for the same is pegged at $660.2 million, suggesting a 22.42% decline from the year-ago reported figure.

The company anticipates non-GAAP earnings per share in the band of 15-19 cents. The consensus mark stands at 17 cents, indicating a 48.48% decline.

The company surpassed the Zacks Consensus Estimate thrice in the trailing four quarters, and missed it once, the average positive surprise being 3.16%.

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

In the fiscal second quarter, non-GAAP earnings of 16 cents beat the consensus estimate of 15 cents but declined 43% from the year-ago quarter.

Marvell’s revenues of $657 million surpassed the consensus estimate of $650 million. However, the figure declined 1.2% year over year.

Factors at Play

An increase in demand for storage controllers from the data center and enterprise markets is likely to have boosted Marvell’s third-quarter performance. Demand, particularly from high-capacity nearline drives, combined with some improvement in the SSD market after a period of under shipment, is expected to have been a tailwind for storage revenues.

Moreover, slight seasonal growth in HDDs for PCs in gaming is likely to have resulted in an approximate high single-digit sequential rise in fiscal third-quarter storage revenues. The Zacks Consensus Estimate for storage revenues is pegged at $296 million, suggesting 7.6% sequential growth.

Further, demand for fiber channel adapter is also expected to have grown in the quarter.

The seasonal decline in WiFi revenues is likely to have been partially offset by growth in the company’s base station products, driven by the commencement of 5G production shipments.

Continued design wins are also expected to have positively impacted the top line in the quarter.

Moreover, Marvell’s continued efforts to optimize operating expenses are likely to have taken the steam off the margins.

However, continued weak macroeconomic conditions and impact of the export restrictions and accounting for the customer factory transition might have been an overhang on networking revenues. Management expects a low-single digit sequential decline in the same.

Seasonal decline in Wi-Fi revenues is also expected to have been an overhang on fiscal third-quarter top line.

Furthermore, sluggishness in the global chip industry is likely to have been an overhang. This is because of the company’s significant dependence on semiconductor sales for revenues.

Also, other product revenues are expected to have declined sequentially after a strong second-quarter fiscal 2020. The Zacks Consensus Estimate for other product revenues is pegged at $45.2 million, suggesting a 13.1% sequential decrease.

Moreover, management expects non-GAAP gross margin to be between 63% and 64%, reflecting a weaker product mix due to the impact of export restriction and low networking revenues. Additionally, the Huawei ban has led the company to expect zero shipments to the telecom equipment maker. This is likely to have further affected the product mix and put pressure on margins.

What Does the Zacks Model Say

The proven Zacks model does not conclusively predict an earnings beat for Marvell this time around. The combination of a positive Earnings ESP and Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here.

Marvell has a Zacks Rank #3 and an Earnings ESP of 0.00%.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

Following are a few stocks worth considering with the right mix of elements to beat estimates this time:

Canadian Imperial Bank of Commerce CM has an Earnings ESP of +0.61% and a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Dollar General Corporation DG has an Earnings ESP of +0.65% and a Zacks Rank of 2.

CarMax, Inc. KMX has an Earnings ESP of +0.5% and is Zacks #2 Ranked.

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