Marvell Technology Group (MRVL - Analyst Report) reported fourth-quarter fiscal 2013 adjusted earnings per share (EPS) of 12 cents, surpassing the Zacks Consensus Estimate of 8 cents. However, the quarter’s result was 20.7% below the year-ago level, mostly due to higher expenses. Shares rallied 5.49% in the after hours, reflecting investor confidence in the quarter’s results and upbeat guidance.
Marvell reported revenues of $775.3 million in the fourth quarter, up 4.4% from $742.7 million in the year-ago quarter. The quarter’s result came well above the company’s guidance range of $700.0–$740.0 million. The better-than-expected result was mainly due to increased demand from our mobile, wireless, and storage customers, offsetting the ongoing macro uncertainty and a lackluster PC market.
Reported gross margin declined 190 basis points (bps) year over year to 52.2% due to higher commodity costs and product mix. Operating margin was 5.6%, down from 9.4% in the year-ago quarter. Total operating expenses were $360.8 million, up 8.8% from the year-earlier quarter.
GAAP net income in the quarter was $50.2 million, or 9 cents per share, compared with $80.7 million, or 13 cents in the year-ago period. Excluding amortization and restructuring but including stock-based compensation expenses, net income on non-GAAP basis was $67.9 million, or 12 cents per share, compared with $95.2 million or 16 cents in the year-earlier period.
Balance Sheet & Cash Flow
Marvell ended the quarter with cash, cash equivalents and short-term investments of $1.92 billion, down from $2.02 billion in the prior quarter. Accounts receivable were $330.2 million compared with $374.8 million in the prior quarter. Inventories decreased to $250.4 million from $324.0 million in the preceding quarter. The company carries no long-term debt.
Cash from operating activities was $204.6 million in the fourth quarter compared with $136.6 million in the prior quarter. Capital expenditure was $19.1 million. Free cash flow was $161.0 million, which was roughly 20.1% of revenues, up from 14.4% of revenues in the prior quarter.
During the quarter, Marvell Tech bought back 34.0 million shares for a total value of $283.0 million. The company also paid $31.7 million toward quarterly cash dividend of 6 cents per common share.
Fourth Quarter Guidance
After witnessing a difficult 2013, management now expects many of its investments and key initiatives to pay off in fiscal 2014 across all its end markets.
Marvell provided a weak first-quarter 2014 revenue forecast citing weakness in the networking market. But the company expects a boost from the second quarter onwards.
Marvell Tech expects first quarter revenues in the range of $700.0–$740.0 million, representing a decline of 7.1% sequentially at the mid-point. In terms of end market, the company expects mobile and wireless end markets to decrease mid-to high teens sequentially, mainly due to seasonality in demand for its wireless connectivity products.
Storage market is expected to decline mid-single digits sequentially due to seasonality and the Chinese New Year-related slowdown. SSD business is expected to grow double digits in the first quarter due to market share gains. The company expects networking to decline approximately mid-single digits, mainly due to a weaker demand environment.
Gross margin is projected to be 52.7% (+/- 50 basis points) on a GAAP basis and 53.0% (+/- 50 bps) on a non-GAAP basis. The company anticipates operating expenses to be approximately $360.0 million (+/- $10.0 million) on a GAAP basis and $310.0 million (+/- $10.0 million). Research and development expenses are estimated at approximately $250.0 million and selling, general and administrative expenses at approximately $60.0 million. Marvell expects non-GAAP operating margin of approximately 10.0% (+/- 1.0%). Net interest (expense)/other income are expected to be approximately $2.0 million. Non-GAAP tax expense is likely to be $2.0 million.
The share count is projected at 530 million. Considering the above-mentioned estimates, non-GAAP EPS is estimated within the 12–16 cents range. GAAP EPS is expected in the range of 2–6 cents. The Zacks Consensus Estimate for the first quarter is 9 cents.
Marvell delivered solid fourth-quarter results crushing our estimates. Revenue contributions from the end markets were decent. Also, continuous share buybacks were a positive. The first-quarter guidance though reflects softness, but gives an overall positive view for the rest of the year.
We remain positive on Marvell’s diverse revenue model and stable balance sheet. However, we remain concerned about stiff competition in the semiconductor market from major players, such as Intel Corp. (INTC - Analyst Report) , Texas Instruments Inc. (TXN - Analyst Report) and LSI Corp. (LSI) . We are also concerned about the significant number of pending lawsuits, higher material costs and the company’s European exposure.
Currently, Marvell Technology has a Zacks Rank #3 (Hold).