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Marvell Technology Group Ltd. (MRVL - Free Report) reported better-than-expected second-quarter fiscal 2018 (ended Jul 29, 2017) results.

The company reported non-GAAP earnings (excluding stock-based compensation and all one-time items) of 30 cents per share, outpacing the Zacks Consensus Estimate of 28 cents. Reported earnings were far better than the year-ago figure of 18 cents. The year-over-year increase was primarily owing to higher revenues and growth in operating margin.

Marvell stock has gained 14.4% year to date, outperforming the 12.2% rally of the industry it belongs to.



Quarter Details

Marvell’s revenues grew 1.2% year over year to $604.8 million. The reported figure beat the Zacks Consensus Estimate of $600 million.  The year-over-year increase was mainly due to growth in storage, networking and connectivity business.

At the end markets, storage revenues (52% of total revenues) increased 13% year over year on better-than-expected demand at the SSD (Solid-State Drive) segments along with increased demand from enterprise and data center market.

The networking business (24%) decreased 6% year over year mainly due to decline in the   network of processor product line.

Revenues from connectivity (16%) increased 6% year over year, primarily driven by wins in gaming and home media streaming applications. Other product (8%) revenues during the quarter declined 35% year over year.

Marvell’s non-GAAP gross profit came in at $369.9 million, up 12.2% on a year-over-year basis. Gross margin also increased from 55.2% to 61.2% on a year-over-year basis, primarily buoyed by a favorable product mix and higher revenue base.

Non-GAAP operating expenses decreased 11.9% year over year to $214.2 million. As a percentage of revenues operating expenses contracted 530 basis points (bps) to 35.4%. Marvell’s non-GAAP operating margins came in at 25.8% compared with 14.5% reported in the year-ago quarter. The results were positively impacted by lower operating expenses as a percentage of revenues.

The company reported non-GAAP net income (excluding stock-based compensation and all one-time items) of approximately $153.5 million during the quarter as compared with $98.6 million reported in the year-ago quarter.

Marvell exited the quarter with cash, cash equivalents and short-term investments of $1.574 billion as compared with $1.649 billion in the previous quarter. The company carries no long-term debt. Cash from operating activities during the quarter amounted to $101.3 million.
 
During the quarter, Marvell paid $30 million as dividend to its shareholders and repurchased $221 million worth of shares.

Outlook

Marvell expects third-quarter fiscal 2018 revenues in the range of $595-$625 million (mid-point $610 million). The Zacks Consensus Estimate is pegged at $623 million.

Management expects non-GAAP gross margin in the range of 61-62%, while non-GAAP operating expenses are expected to be roughly between $205 million and $210 million. The company anticipates non-GAAP earnings per share in the band of 30-34 cents (mid-point 32 cents) while the Zacks Consensus Estimate is pegged at 31 cents.

Our Take

Marvell reported stellar second-quarter fiscal 2018 results, wherein the bottom and top line surpassed the Zacks Consensus Estimate. Revenues improved on a year-over-year basis mainly owing to increased demand from its storage, networking and connectivity business. Moreover, 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.

Going forward, the company’s current restructuring initiative will help Marvell improve cloud infrastructure and applications, which are expected to drive the top line. The latest buyback scheme also reflects its 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) is a headwind.

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

A better-ranked stock in the technology space is NVIDIA Corporation (NVDA - Free Report) , sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

NVIDIA has long-term expected earnings per share growth rate of 10.3%.

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