A month has gone by since the last earnings report for Marvell Technology (MRVL - Free Report) . Shares have added about 7.6% 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 catalysts.
Marvell Reports Q1 Results
Marvell reported first-quarter fiscal 2020 non-GAAP earnings of 16 cents, which beat the Zacks Consensus Estimate of 15 cents. However, it declined 50% from the year-ago quarter.
Marvell’s revenues increased 9.6% year over year to $662.5 million, and surpassed the consensus estimate of $650 million.
Strong growth in networking business led to the top-line improvement. However, due to the export restriction, which was implemented early in the quarter, both networking and revenues were affected.
The company also recently announced the acquisitions of Avera and Aquantia, which will be highly complementary to its Ethernet (particularly automotive) and PHY businesses. Further, Marvell announced the divestment of its Wi-Fi business to NXP Semiconductors (NXPI) for $1.76 billion. The proceeds from this transaction will be used to pay for the aforementioned acquisitions.
In the end markets, storage revenues (42% of total revenues) dropped 12% year over year to $278.7 million. Seasonality and excess inventory in supply chains of storage controller customers affected revenues from this segment.
Within the segment, revenues from the fiber channel business came in below expectations due to softness in server market. However, revenues from storage controllers were higher than expected. Weakness in compute demand in cloud and beyond was a dampener.
The networking business (52%) jumped a whopping 40% year over year to $341.3 million, driven by solid performance in Marvell’s OCTEON suite of high-end embedded processors and high demand for its Ethernet switch and PHY products.
However, the segment declined 12% sequentially as a result of seasonality, high inventory control at key customers and weak demand from Chinese customers.
Other product (6%) revenues during the fiscal first quarter declined 2% on a year-over-year basis to $42.4 million.
During the quarter, the company successfully integrated Marvell and the Cavium ERP systems. Marvell expects to achieve its OpEx synergy goal from the Cavium acquisition in the fiscal second quarter.
Marvell’s non-GAAP gross profit came in at $424.7 million, up 12.5% on a year-over-year basis. Non-GAAP gross margin expanded 160 basis points (bps) to 64.1%,
Non-GAAP operating expenses rose 39.2% year over year to $294.8 million. Non-GAAP operating margin contracted 780 bps to 19.6%.
Marvell exited the quarter with cash, cash equivalents of $571.9 million compared with $582.4 million in the previous quarter.
The company paid $50 million of its long-term debt, which now totals $1.7 billion. Cash from operating activities amounted to $165.8 million compared with $299.4 million in the prior quarter.
During the quarter, Marvell paid dividend of around $39 million to shareholders and bought back $50 million of its shares.
Marvell projects second-quarter fiscal 2020 revenues of $650 million, up or down up to 3%.
In the second quarter of fiscal 2020, demand for Marvell Storage Controllers is expected to remain soft due to continued weak macroeconomic conditions. Impact of the export restrictions and accounting for the customer factory transition is expected to lead to an approximate mid-single digit sequential decline in storage revenues.
Revenues from networking are expected to decline slightly sequentially in the fiscal second quarter due to the export restriction.
Management expects non-GAAP gross margin to be between 63% and 64%, reflecting a weaker product mix due to impact of export restriction and low storage revenues. Non-GAAP operating expenses are estimated to be within $285-$290 million. The company anticipates non-GAAP earnings per share in the band of 13-17 cents.
How Have Estimates Been Moving Since Then?
Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -56.59% due to these changes.
Currently, Marvell has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Marvell has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.