Shares of Marvell Technology (MRVL - Analyst Report) went down 2.1% in yesterday’s trade. The decline was the result of a downgrade from market perform rating to underperform rating by the research firm Oppenheimer.
According to the firm’s analyst Rick Schafer, the major reason for the downgrade is Marvell’s growing focus on the low-end China TD-LTE for smartphones and the inability to gain traction in the mid and high-end China mobile segment.
Moreover, higher adoption of low–end China LTE mobile baseband designs and stiff completion from the likes of Qualcomm Inc. (QCOM - Analyst Report) in the mid and high-end LTE China mobile segment could impact the company's margins in the long run. Reportedly, Marvell has also lost market share to Broadcom Corp. in the wireless segments, which remains another headwind for the company.
Despite yesterday’s drop, the strong demand for Marvell’s 4GLTE products, adoption of its new products, and diverse revenue base coupled with a stable balance sheet are expected to pull the company out of the situation. In fact, in the last reported quarter, Marvell’s top line surpassed its guidance, supported by better-than-expected demand from the mobile and wireless business.
Nonetheless, strong demand for the company’s 4G LTE platform and seasonal growth in connectivity business are expected to be offset by a decline in 3G businesses in the forthcoming quarter, according to management.
It is worth mentioning that, management expects second-quarter 2015 revenues to be in the range of $940.0–$980.0 million. Non-GAAP gross margin is expected to be 50.0% (+/-100 bps) for the forthcoming quarter while non-GAAP operating expenses are expected to be $330.0 million (+/-$10 million).
Additionally, PC shipments, though a continually disturbing factor so far, have showed signs of improvement of late. As per the latest report provided by research firm IDC, 2014 PC shipments are expected to contract 6.0%, marginally lower than the research firm’s earlier forecast of a decline of 6.1% provided in March this year. The improved estimate is largely due to stabilization in Western Europe and higher-than-expected sales in other mature markets. Thus the stability in PC sales will be able to offset some of the aforesaid mentioned headwinds.
However, competition in the semiconductor market from major players such as Intel Corp. (INTC - Analyst Report) and Texas Instruments Inc. remains a headwind. Moreover, sluggish macroeconomic conditions, the impending damage payment and higher material costs are the other challenges in the near term.
Currently, Marvell has a Zacks Rank #2 (Buy).