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Marvell (MRVL) to Report Q3 Earnings: What's in the Cards?

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Marvell Technology Group Ltd. (MRVL - Free Report) is set to report third-quarter fiscal 2019 results on Dec 4.

The company reported second-quarter fiscal 2019 non-GAAP earnings of 28 cents which declined 6.7% from the year-ago quarter and missed the Zacks Consensus Estimate of 34 cents.

Revenues increased 9.9% year over year to $665 million and surpassed the Zacks Consensus Estimate of $616 million.

For the to-be-reported quarter, the company expects revenues in the range of $825-$865 million and earnings between 30 cents and 34 cents per share.

The Zacks Consensus Estimate for revenues is pegged at $844.9 million, indicating year-over-year increase of 37.1%. The consensus mark for earnings is at 32 cents, projecting a decline of 5.9% year over year.

Let’s see how things are shaping up prior to this announcement.

Factors in Play

Marvell is benefiting from strong growth in networking and continued improvement in the storage business, which includes Cavium’s fiber channel products.

The company’s consistent efforts to gain more share in the nearline segment of the HDD market on strong demand for cloud data storage are expected to boost the storage segment in the soon-to-be-reported quarter. The company is also trying to expand into the enterprise and data center segment of the SSD market, which is a positive.
 
Moreover, management is optimistic about three new storage architecture solutions released by the company in the last reported quarter, which are based on the NVMe SSD chipset. The Zacks Consensus Estimate for revenues in the Storage Products business is pegged at $400 million, indicating an increase of 27% from the year-ago quarter’s tally.

Marvell’s core switch, PHY and processor solutions are expected to sustain the uptrend in the to-be-reported quarter. The recent partial lifting of export ban has further driven the networking business, courtesy of the redemption of shipment to DTE. The inclusion of Cavium’s products further strengthened the networking segment. The company’s automotive Ethernet business is also gaining traction.

The company expects Cavium businesses to contribute approximately $210 million to revenues, which is another positive.

However, in the HD storage drive market, Marvell faces significant competition from Broadcom (AVGO - Free Report) . Recently, Broadcom has undertaken initiatives to strengthen its lead position in the Ethernet market, which threatens Marvell’s market share.

Increasing OpEx is expected to continue to dent margins. Moreover, the recent buyout of Cavium is likely to keep earnings under pressure in the yet-to-be-reported quarter.

What Does the Zacks Model Say?

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Stocks with a Zacks Rank #4 (Sell) or 5 (Strong Sell) are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Marvell currently has a Zacks Rank #2 and an Earnings ESP of 0.00%, which makes surprise prediction difficult.

Stocks with a Favorable Combination

Here are two stocks, which per our model, have the right combination of elements to post earnings beat this quarter:

lululemon athletica inc. (LULU - Free Report) has an Earnings ESP of +1.87% and carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Science Applications International Corp. (SAIC - Free Report) has an Earnings ESP of +0.44% and carries a Zacks Rank of 3.

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