It has been about a month since the last earnings report for Marvell Technology (MRVL - Free Report) . Shares have added about 6.5% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Marvell due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Marvell Reports Q3 Results
Marvell reported third-quarter fiscal 2019 non-GAAP earnings of 33 cents, which beat the Zacks Consensus Estimate of 32 cents. However, it declined 3% from the year-ago quarter.
Marvell’s revenues increased 38.1% year over year to $851.1 million and surpassed the consensus estimate of $845 million. Strong growth in networking and the storage business led to the impressive top-line results. Also, exhaustion of excess inventory at Cavium during the fiscal third quarter led to higher-than-expected revenues from Cavium products.
In the end markets, storage revenues (48% of total revenues) grew 29% year over year to $407 million. The company shipped approximately 30% more storage controllers to the enterprise and datacenter market, driving the solid storage revenue growth. This growth offset the year-over-year decline in revenues from the PC market.
Moreover, sequential growth of 21% was also recorded, which can be attributed to seasonal increase in demand in all storage markets. Revenues from the fiber channel business also came in above expectations.
During the fiscal third quarter, Marvell bagged several storage controller designs, including three datacenter sockets and an edge video surveillance application. These are expected to be put to use late next year and be significantly accretive to storage revenues, going forward.
The company’s new flash platform solutions including NVMe aggregators, accelerators and converters were also sampled during the quarter, and were received positively among users.
The networking business (47%) jumped a whopping 57% year over year to $398.4 million, driven by solid performance in Marvell’s OCTEON suite of high-end embedded processors and high demand from its Ethernet switch and PHY products.
During the quarter, export ban was partially lifted, leading to the revival of shipment to DTE. This further boosted the networking segment’s performance. Moreover, Cavium’s products also contributed positively to the segment’s results.
Management expects 5G base stations to be a major growth driver for Marvell. The company also witnessed continued momentum in 5G engagements with higher number of Tier 1 customers.
The company’s Ethernet switch and PHY business is also gaining traction with continued ramping of new products in the enterprise market, which led to revenue increase of 30% from this business. Its refreshed switching products continued to grow with new socket wins including a switch design with a major OEM and a number of PHY wins from a key networking OEM.
Marvell’s Wi-Fi revenues declined per expectations due to its ongoing transitioning from older gaming connectivity products during the reported quarter.
The ARM server CPU business of the company continued its momentum with a number of cloud and high-performance computing customers qualifying the ThunderX2 processors.
Other product (5%) revenues during the quarter declined 4%, on a year-over-year basis, to $45.8 million.
Marvell’s non-GAAP gross profit came in at $549.5 million, up 45% on a year-over-year basis. Non-GAAP gross margin also increased 300 basis points (bps) to 64.6%,
Non-GAAP operating expenses rose 45% year over year to $297 million. Non-GAAP operating margin increased 130 bps to 29.7%.
The company reported non-GAAP net income from continuing operations of approximately $221.7 million during the quarter compared with $171.8 million in the prior-year quarter.
Marvell exited the quarter with cash, cash equivalents and short-term investments of $610 million compared with $523.7 million in the previous quarter.
The company has a long-term debt of $1.8 billion. Cash from operating activities amounted to $299.4 million compared with $61.9 million in the prior quarter.
During the quarter, Marvell paid dividend of around $39 million to shareholders and bought back $54 million of its shares.
Marvell projects fourth-quarter fiscal 2019 revenues in the range of $790-$830 million.
Storage revenues are anticipated to fall approximately 10% sequentially in the quarter due to headwinds like weak revenues from the PC market, CPU shortages, U.S.-China trade issues, moderating cloud CapEx and growing inventory at client companies.
Revenues from networking are expected grow at a low single-digit rate sequentially in the fiscal fourth quarter.
Wi-Fi revenues are expected to phase out in the fourth quarter, before re-materializing in the quarters ahead. The company recently introduced the 802.11ax set of solutions, which will help it capitalize on the market shift to the next generation of Wi-Fi, going forward.
Other revenues are projected to decline 10% sequentially. Marvell expects revenues from Legacy products to fall about 10% sequentially in the fiscal fourth quarter.
Management expects non-GAAP gross margin to be approximately 65%. Non-GAAP operating expenses are estimated to be within $285-$290 million.
The company anticipates non-GAAP earnings per share in the band of 30-34 cents.
Ethernet switch and PHY business is expected to sustain its growth momentum in the fiscal fourth quarter. The fully integrated Cavium business is projected to rake in approximately $240 million in revenues.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
Currently, Marvell has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Marvell has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.