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Marvell Technology (MRVL) Q3 Earnings and Revenues Beat

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Marvell Technology Group Ltd. (MRVL - Free Report) reported better-than-expected third-quarter fiscal 2017 (ended on Oct 29, 2016) results.

The company reported adjusted earnings (including stock-based compensation but excluding amortization, acquisition, restructuring, legal related expenses and other one-time items) of 15 cents per share, which comfortably beat the Zacks Consensus Estimate of 5 cents. Also, reported earnings were far better than the year-ago loss of 1 cent per share.

Quarter Details

Marvell’s revenues fell 3% year over year to $654.4 million. The reported figure however surpassed the Zacks Consensus Estimate of $612 million. The company blamed softer-than-expected demand in the mobile handset business for the dismal revenue performance.

By end markets, storage revenues increased 21% year over year mainly due to better-than-expected demand from the HDD (Hard-Disk Drive) and SSD (Solid-State Drive) segment.

The networking business increased 20% year over year mainly on the back of strong demand in the enterprise networking business.

Revenues from the mobile and wireless segment decreased 11% sequentially and 50% year over year, primarily due to the exit of mobiles and some lower margin units. Also, mobile handset-related revenues during the quarter were $4 million, down from $9 million in the previous quarter.

Marvell’s adjusted gross profit came in at $368.8 million, up 19.9% on a year-over-year basis. Gross margin also increased from 45.6% to 56.4% on a year-over-year basis, primarily due to a favorable product mix and higher operational efficiency.

Adjusted operating expenses were down 9.8% year over year to $281.9 million. Marvell’s adjusted operating income came in at $86.9 million as against an operating loss of $4.9 million reported in the year-ago period. The results were positively impacted by lower operating expenses as a percentage of revenues (down 322 basis points year over year).

The company reported adjusted net income (including stock-based compensation but excluding amortization, acquisition, restructuring, legal related expenses and other one-time items) of $76.6 million during the quarter as against a loss of $3.6 million reported in the year-ago quarter.

Marvell exited the quarter with cash, cash equivalents and short-term investments of $1.65 billion. Cash from operating activities amounted to $121.5 million. The company carries no long-term debt.

During the quarter, Marvell paid $30.7 million as dividend to its shareholders and repurchased $56.5 million share.

Marvell during the quarter also approved a $1 billion share repurchase program. The new authorization will replace the earlier $3.25 billion share purchase program. The company had roughly $150 million worth of shares available for repurchase under the program.

Outlook

Marvell expects fourth-quarter fiscal 2017 revenues be $565 million (+/- 2%). The Zacks Consensus Estimate is pegged at $594 million.

Management expects non-GAAP gross margin to be in a range of 57% to 58% in the current quarter while non-GAAP operating expenses are expected to be roughly $225 million to $235 million. The company expects non-GAAP earnings per share to be 17 cents to 21 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 encouraging third-quarter fiscal 2017 results, wherein both the top and the bottom line surpassed the Zacks Consensus Estimate. However, revenues slumped on a year-over-year basis mainly due to lower demand in the mobile handset business. Also, the company provided a tepid fourth-quarter revenue 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.

Going forward, the company’s recent restructuring initiative will benefit Marvell to improve cloud infrastructure and applications, which are expected to drive the company’s top line. The latest buyback scheme also reflects the company’s sound financial position and favorable prospects.

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 #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Another stock worth considering in the technology space is Seagate Technology plc (STX - Free Report) , also sporting a Zacks Rank #1.

Seagate has a long term expected earnings per share growth rate of 4.05%.

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