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Marvell (MRVL) Beats on Q2 Earnings, Misses on Revenues

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Marvell Technology Group Ltd. (MRVL - Free Report) reported mixed second-quarter fiscal 2017 (ended on Jul 30, 2016) results.

The company reported adjusted income (including stock-based compensation but excluding amortization, acquisition, restructuring, legal related expenses and other one-time items) of 11 cents per share, which beat the Zacks Consensus Estimate of 6 cents.

Quarter Details

Marvell’s revenues fell 11.8% year over year to $626.4 million. The reported figure also missed the Zacks Consensus Estimate of $631 million. The company blamed softer-than-expected demand in the mobile handset business for the dismal revenue performance.

By end markets, storage revenues increased 13% quarter over quarter mainly due to better-than-expected demand from the HDD (Hard-Disk Drive) and SSD (Solid-State Drive) segment.

The networking business increased 12% sequentially mainly on the back of strong demand in enterprise networking business.

Revenues from the mobile and wireless segment increased 21% sequentially attributable to a rise in seasonal game console production. However, mobile handset-related revenues during the quarter were $9 million, down from $22 million in the previous quarter.

Marvell’s adjusted gross profit came in at $339.3 million, up 2.5% on a year-over-year basis. Gross margin also increased 758 basis points (bps) on a year-over-year basis and was 54.2%, primarily due to a favorable product mix.

Adjusted operating expenses were down 70.3% year over year to $296.1 million. Marvell’s adjusted operating income came in at $43.2 million as against operating loss of 665.5 million reported in the year-ago period. The results were positively impacted by lower operating expenses as a percentage of revenues.

The company reported adjusted net income (including stock-based compensation but excluding amortization, acquisition, restructuring, legal related expenses and other one-time items) of $54.9 million during the quarter.

Marvell exited the quarter with cash, cash equivalents and short-term investments of $1.62 billion. Cash from operating activities amounted to $59.3 million. The company carries no long-term debt.

During the quarter, Marvell paid $30.7 million as dividend to its shareholders. The company did not repurchase any shares during the quarter.

Outlook

Marvell expects third-quarter fiscal 2017 revenues be flat to down 4% sequentially.

Management expects non-GAAP gross margin to be in a range of 52% to 54% in the current quarter while non-GAAP operating expenses are expected to be roughly flat quarter over quarter. The company expects non-GAAP earnings per share to be 8 cents to 13 cents while the Zacks Consensus Estimate is pegged at 6 cents.

 

MARVELL TECH GP Price, Consensus and EPS Surprise

 

MARVELL TECH GP Price, Consensus and EPS Surprise | MARVELL TECH GP Quote

Our Take

Marvell reported mixed second-quarter fiscal 2017 results, wherein the bottom line surpassed the Zacks Consensus Estimate but the top line missed the same. Also, revenues slumped on a year-over-year basis mainly due to lower demand in the mobile handset business. However, the company provided encouraging third-quarter earnings guidance.

Though the macro headwinds and stringent regulations might put the company's financials under pressure in the near term, we believe that the strong demand for Marvell’s 4G LTE products could be a growth driver. This will be supported by growth from the company’s wide range of newly-launched Internet of Things (IoT) solutions.

However, competition in the semiconductor market from major players such as Intel Corp. (INTC - Free Report) and Texas Instruments Inc. (TXN - Free Report) remains a headwind.

Currently, Marvell Technology has a Zacks Rank #3 (Hold).

A better-ranked stock worth considering the wider technology space is Seagate Technology plc (STX - Free Report) , sporting a Zacks Rank #1 (Strong Buy).

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