Marvell Technology Beats On Q4 Earnings, Revenues Miss

Marvell Technology Group Ltd. (MRVL - Snapshot Report) reported fourth-quarter fiscal 2015 adjusted earnings (including stock-based compensation but excluding amortization, acquisition, restructuring and legal related expenses) of 18 cents per share, which beat the Zacks Consensus Estimate by a penny. However, earnings declined from 22 cents reported in the year-ago quarter, mainly due to a lower revenue base and higher share count.

Marvell Technology Group Ltd. - Earnings Surprise | FindTheBest

Quarter Details

Marvell’s revenues fell 7.9% year over year to $857.5 million. Moreover, it was significantly lower than the company’s guidance range of $880 million – $900 million and also missed the Zacks Consensus Estimate of $893 million. The lower-than-expected top-line performance was mainly due to seasonal factors coupled with lower revenues from its networking business and soft performance by the mobile business.

By end markets, storage revenues were positively impacted by strong demand from SSD customers and share gains in the HDD segment. Revenues from the storage end market were however down 4% on a quarterly basis.

The networking business decreased 3% sequentially as the company witnessed lower-than-expected demand for carrier spending.

Although continuous 4G LTE ramp in China was a positive, lower-than-expected demand from the 3G mobile business, seasonality in gaming solutions and lower ASP impacted sales in mobile and wireless end markets, which declined 19% from the last quarter.

Marvell’s adjusted gross profit came in at $442.2 million, down 4.7% on a year over year basis. Gross margin expanded 176 basis points (bps) on a year over year basis to 51.6% primarily due to a favorable product mix and lower cost of sales.

Adjusted operating expenses were more or less consistent with the year-ago quarter levels as a result of focused cost control and operating efficiencies across all businesses.

Marvell’s adjusted operating income dropped 19.7% on a year over year basis to $91 million. Operating margin shrank 155 bps year over year to 10.6% during the same period, primarily impacted by higher operating expenses as a percent of revenues (up 330 basis points).

The company reported adjusted net income (including stock-based compensation but excluding amortization, acquisition, restructuring and legal related expenses) of $92.9 million or 18 cents per share compared with $112.9 million or 22 cents in the year-ago quarter.

Marvell exited the quarter with cash, cash equivalents and short-term investments of $2.53 billion. Further, it generated $155.4 million of cash from operating activities and free cash flow of $135 million. The company carries no long-term debt. During the quarter, Marvell paid dividends of $30.9 million and repurchased stocks worth $20 million.

Guidance

Marvell expects first-quarter fiscal 2015 revenues in the range of $810 million–$830 million, lower than the Zacks Consensus Estimate of $886 million.

Management expects non-GAAP gross margin to be 50.5% (+/-100 bps), while non-GAAP operating expenses are expected to be $320 million (+/-$10 million). The company expects non-GAAP earnings per share to be 18 cents (+/- 1 cent), while the Zacks Consensus Estimate is pegged at 15 cents.

Our Take

Marvell posted mixed fourth-quarter fiscal 2015 results wherein its bottom line beat the Zacks Consensus Estimate but the top line missed the same. Also, revenues fell on a year over year basis mainly due to lower revenues from its networking business and soft performance by the mobile business.

Also, the company provided a tepid first quarter revenue guidance, primarily impacted by lower-than-expected revenues from the storage business and mobile and wireless business.

Nonetheless, we believe that the strong demand for Marvell’s 4G LTE products could be the growth driver in the forthcoming quarters. This will be supplemented with growth from the company’s wide range of newly-launched Internet of Things (IoT) solutions. We also remain positive on Marvell’s diverse revenue base and stable balance sheet.

However, competition in the semiconductor market from major players such as Intel Corp. (INTC - Analyst Report) and Texas Instruments Inc. (TXN - Analyst Report) remains a headwind. Sluggish macroeconomic conditions and a shrinking PC market are the other challenges in the near term.

Currently, Marvell Technology has a Zacks Rank #3 (Hold).

Investors can also consider Cirrus Logic Inc. (CRUS - Snapshot Report), sporting a Zacks Rank #1 (Strong Buy).