It has been about a month since the last earnings report for Marvell Technology (MRVL Quick QuoteMRVL - Free Report) . Shares have added about 11.1% 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 the most recent earnings report in order to get a better handle on the important drivers.

Marvell Reports Q4 Results

Marvell reported fourth-quarter fiscal 2019 non-GAAP earnings of 25 cents, which missed the Zacks Consensus Estimate of 26 cents. It also declined 21.9% from the year-ago quarter.

Marvell’s revenues increased 21.1% year over year to $745 million and surpassed the consensus estimate of $740 million.

For full-fiscal 2019, revenues came in at $2.9 billion compared with $2.4 billion a year ago.

The company’s shift of focus to the infrastructure market was a positive. The Cavium business continued to positively contribute to the top line.

However, lower-than-expected performance in the networking and storage businesses was an overhang.

Quarter Details

In the end markets, storage revenues (43% of total revenues) declined 2% year over year and 22% sequentially to $317 million.

Fall in demand for storage controllers due to factors like macroeconomic issues, reduction in cloud capital spending and CPU shortages, affected the segment’s results.

Additionally, shift in demand for products consigned to vendor-managed inventory arrangements was also a headwind.

The networking business (52%) jumped a whopping 60% year over year to $387.5 million, driven by stronger-than-expected demand from the wireless base station market, resulting in strong growth in embedded processor revenues.

During the quarter, Marvell secured design wins in 5G, including a long-term partnership with Samsung to deliver embedded processors and baseband processors for both LTE and 5G base stations.

Marvell's Ethernet switch and PHY business revenues grew in double-digits, driven by its refresh product portfolio. Design win pipeline was strong.

The company continued to progress in ARM server processor evaluations with cloud and high performance computing customers. Management is optimistic about its next-generation ARM server processor ThunderX3, which is being developed in 7-nanometer technology. It is expected to be tested with customers in the second half of 2019. Marvell’s liquid security products continue to gain momentum in the cloud market.

The company’s automotive business also continued to make steady progress.

Other product (5%) revenues during the quarter declined 20%, on a year-over-year basis, to $40.3 million.

Margins

Marvell’s non-GAAP gross profit came in at $480.1 million, up 25.3% on a year-over-year basis. Non-GAAP gross margin increased 220 basis points (bps) to 64.5%,

Non-GAAP operating expenses rose 31.5% year over year to $286.1 million. However, non-GAAP operating margin fell 90 bps to 26%.

The company reported non-GAAP net income from continuing operations of approximately $168.1 million during the quarter compared with $164.8 million in the prior-year quarter.

Balance Sheet

Marvell exited the quarter with cash, cash equivalents and short-term investments of $582.4 million compared with $610 million in the previous quarter.

The company has a long-term debt of $1.7 billion. During the quarter, Marvell paid off $75 million of its debt. Cash from operating activities amounted to $106.6 million compared with $299.4 million in the prior quarter.

Marvell paid dividend of around $39 million to shareholders and bought back $50 million of its shares.

Guidance

Marvell projects first-quarter fiscal 2020 revenues of $650 million, subject to a change of about 3% up or down. This reflects an expected 10% sequential decline in revenues due to residual impact from the tight inventory control from customers, seasonality and the continued uncertainty in demand from China-based customers.

The company expects revenue growth to resume from the fiscal second quarter.

Revenues from networking are expected to fall in the fiscal first quarter.

Management expects non-GAAP gross margin to be approximately 64% for the first-quarter fiscal 2020. Non-GAAP operating expenses are estimated to be within $295-$300 million.

The company anticipates non-GAAP earnings per share in the band of 12-16 cents in the first quarter of fiscal 2020.

The fully integrated Cavium business is projected to rake in approximately $200 million in revenues in the full fiscal year. The company expects to realize a $50 million cost of synergy with Cavium acquisition in the fiscal year.

Management expect shipments of 5G products to start ramping up toward the end of this fiscal year and continue to grow beginning fiscal 2021.

Marvell’s WiFi business is expected to start boosting next-generation products built on the latest WiFi 6 standard, leading its WiFi business to return to growth from the second quarter of fiscal 2020.
 

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -70.92% due to these changes.

VGM Scores

At this time, Marvell has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Marvell has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.