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Marvell (MRVL) Q3 Earnings Meet, Revenues Miss Estimates

Zacks Equity Research

Marvell Technology Group Ltd. MRVL reported third-quarter fiscal 2020 non-GAAP earnings of 17 cents, which matched the Zacks Consensus Estimate. However, it declined 48.5% from the year-ago quarter.

Marvell’s revenues of $662 million lagged the consensus estimate of $664 million. Moreover, the figure declined 22% year over year. Macroeconomic uncertainty and seasonal decline in demand for Wi-Fi products hurt the top line. Nonetheless, key deal wins across various OEMs were a breather.

The company also announced that it has received all necessary approvals to divest its Wi-Fi business to NXP Semiconductors NXPI.

Marvell Technology Group Ltd. Price, Consensus and EPS Surprise

Marvell Technology Group Ltd. Price, Consensus and EPS Surprise

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

Quarter Details

In the end markets, storage revenues (43% of total revenues) fell 29% year over year to $287.7 million due to weaker-than-expected revenues from the edge market on account of soft demand from gaming and video surveillance markets. Moreover, rapid migration from HDD to SSD in the PC market was a headwind.

Nonetheless, 5% sequential growth in storage revenues reflected strength in demand from enterprise and datacentre markets.

The networking business (50%) fell 17% year over year to $330 million due to macroeconomic challenges, which continued to hurt demand from the enterprise end market. Additionally, demand for the company’s Wi-Fi products declined seasonally. However, strong double-digit revenue growth in embedded processors, driven by ramped up 5G shipments, was a positive. 

Other product (7%) revenues during the fiscal third quarter fell 2% on a year-over-year basis to $44.8 million.

The company also announced that Microsoft MSFT is rolling out servers based on Marvell's ThunderX2 server processors for internal Azure development workloads. Management believes that this is a key milestone to drive further adoption of ARM-based servers across the Azure platform.

Further, the company announced that NVIDIA’s NVDA GPU will support Marvell’s ThunderX2-based server platforms to provide powerful exascale computing solutions to HPC and cloud customers.

Continued strength in ThunderX adoption at Marvell’s cloud and HPC customers might lead to revenue growth in its server processors in fiscal 2021.

Margins

Marvell’s non-GAAP gross profit was $421 million, down 23.4% on a year-over-year basis reflecting a weaker product mix due to impact of export restriction and low storage revenues. Non-GAAP gross margin contracted 110 basis points (bps) to 63.5%.

Non-GAAP operating expenses declined 4.6% year over year to $283.3 million. Non-GAAP operating margin contracted 890 bps to 20.8%. SG&A costs remained less than 7% of revenues.

Balance Sheet

Marvell exited the quarter with cash, cash equivalents of $438.4 million compared with $573.5 million in the previous quarter.

The company’s long-term debt totaled $2.04 billion compared with $1.69 billion in the previous quarter. Cash from operating activities amounted to $65.5 million compared with $73.14 million in the prior quarter.

During the quarter, Marvell paid dividend of around $40 million to shareholders.

Guidance

Marvell expects to complete the divestiture of the Wi-Fi Connectivity Business to NXP in the fiscal fourth quarter. However, revenue guidance for the fiscal fourth quarter includes a full quarter of expected results from the Wi-Fi business.

Marvell projects fourth-quarter fiscal 2020 revenues of $750 million, up or down up to 3%. The Zacks Consensus Estimate for revenues stands at $695.24 million, suggesting a decline of 22.4% from the year-ago reported figure.

Non-GAAP earnings per share between 15 cents and 19 cents are expected. The consensus mark of 21 cents indicates a 16% decline.

A 25% sequential increase in networking revenues, driven by full-quarter contributions from Avera and Aquantia, is expected.

Management expects Avera to contribute $300 million in revenues for fiscal 2021. Moreover, Avera is expected to bring an additional $4 billion to Marvell’s addressable market across the datacenter, carrier, enterprise and automotive end markets.

Further, the company expects operating expenses to decline from the second quarter of fiscal 2021 onward, for full-year fiscal 2021.

In the fiscal fourth quarter, Marvell’s 5G shipments are expected to remain strong. However, demand from the enterprise end market is likely to remain weak, partially due to a decline in customers from China.

A decline in Wi-Fi revenues is also expected to remain an overhang.

Storage revenues are likely to remain flat or inch up sequentially. Revenues from datacenter and enterprise end markets should continue to grow, offsetting weakness in the edge and client markets.

Management expects strong growth in 5G-related revenues in the second half of fiscal 2021, driven by continued deployment in Korea and the beginning of higher 5G adoption in Japan and other countries.

Marvell currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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