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Marvell (MRVL) Beats On Q3 Earnings and Revenues, Shares Up

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Shares of Marvell Technology Group Ltd. (MRVL - Free Report) gained approximately 3% in after-hours trading, yesterday, after the company reported better-than-expected third-quarter fiscal 2018 (ended Oct 28, 2017) results. Further, an encouraging fourth-quarter guidance positively impacted the share price.

The company reported non-GAAP earnings (excluding stock-based compensation and all one-time items) of 34 cents per share, outpacing the Zacks Consensus Estimate by a penny. Reported earnings were far better than the year-ago figure of 21 cents.

Marvell stock has gained 72% year to date, outperforming the 57.5% rally of the industry it belongs to.

Quarter Details

Although Marvell’s revenues declined 1.2% year over year to $616.3 million, it surpassed the Zacks Consensus Estimate of $613 million.  Moreover, reported revenues came ahead of the mid-point of management guided range of $595-$625 million (mid-point $610 million).

At the end markets, storage revenues (51% of total revenues) decreased 4% year over year. However, the same increased 1% sequentially on better-than-expected demand at the SSD (Solid-State Drive) segments along with increased demand from enterprise.

The networking business (24%) increased 3% year over year and 2% sequentially mainly due to increase in the network of processor product line.

Revenues from connectivity (17%) increased 19% year over year and 4% sequentially, primarily driven by wins in gaming and home media streaming applications. Other product (8%) revenues during the quarter declined 22% year over year.

Marvell’s non-GAAP gross profit came in at $379.5 million, up 5.7% on a year-over-year basis. Gross margin also increased from 57.2% to 61.3% on a year-over-year basis, primarily buoyed by a favorable product mix and higher revenue base.

Non-GAAP operating expenses decreased 13.8% year over year to $204.5 million. As a percentage of revenues operating expenses contracted 480 basis points to 33.2%. Marvell’s non-GAAP operating margins came in at 28.4% compared with 19.5% 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 $171.8 million during the quarter as compared with $111.9 million reported in the year-ago quarter.

Marvell exited the quarter with cash, cash equivalents and short-term investments of $1.732 billion as compared with $1.574 billion in the previous quarter. The company carries no long-term debt. Cash from operating activities during the quarter amounted to $216.2 million.

During the quarter, Marvell paid $30 million as dividend to its shareholders and repurchased $140 million worth of shares.

Outlook

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

Management expects non-GAAP gross margin to be approximately 62%, while non-GAAP operating expenses are expected to be roughly between $215 million and $220 million. The company anticipates non-GAAP earnings per share in the band of 29-33 cents (mid-point 31 cents) while the Zacks Consensus Estimate is pegged at 28 cents.

Our Take

Marvell reported stellar third-quarter fiscal 2018 results, wherein the bottom and top line surpassed the Zacks Consensus Estimate. Moreover, the company provided encouraging fourth-quarter earnings guidance.

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

In an effort to expand offerings beyond hard disk drives to high growth areas such as data centers and wireless communications, Marvell recently entered into an agreement to acquire Cavium. The buyout will provide the company an opportunity to expand offerings and access newer markets.

Going forward, the company’s current restructuring initiative will help Marvell improve cloud infrastructure and applications, which are projected to drive the top line. The latest buyback scheme also reflects 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 carries a Zacks Rank #2 (Buy).

Another top-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 11.2%.

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