Marvell Technology (MRVL) reported better-than-expected results for the third quarter of fiscal 2024, as the top and bottom lines outpaced the Zacks Consensus Estimates.

Plus, the chipmaker’s Q3 revenues and earnings came above the midpoint of management’s guidance range.

Despite reporting stronger-than-expected Q3 results, MRVL stock fell 10% over the coming week as its guidance for Q4 top and bottom lines fell short of the consensus mark.

And the primary catalyst to dump MRVL into the cellar of the Zacks Rank is that EPS estimates for the new fiscal year (begins in February) were taken down from $2.30 to $1.98.

Analyzing the Quarter

Before discussing specific Q4 forecasts, let’s delve deeper into Q3 performance first.

Wilmington, DE-based Marvell reported non-GAAP earnings of 41 cents per share, beating the Zacks Consensus Estimate by a penny. The bottom line was also above the midpoint of the company’s previous forecast of 40 cents (+/- 5 cents).

The semiconductor company reported revenues of $1.42 billion, which surpassed the consensus mark of $1.40 billion. The top line was also higher than the midpoint of management’s guidance of $1.40 billion (+/- 5%).

However, non-GAAP earnings per share and revenues fell 28.1% and 7.7%, respectively, from the year-ago quarter. This decline can primarily be attributed to customer inventory reduction actions and a weakening demand environment across the enterprise networking end market amid the ongoing macroeconomic uncertainty.

Quarterly Details

Data center revenues of $555.8 million decreased 11% year over year but increased 21% sequentially. The robust sequential increase was primarily driven by strong revenue growth across artificial intelligence (AI) and standard cloud infrastructure, partially offset by depressed demand for data center storage.

The segment accounted for 39% of the quarter’s total revenues, highlighting that it is currently MRVL’s largest end market. Our estimate for Data Center’s third-quarter revenues was pegged at $532.7 million.

Revenues from enterprise networking plunged 28% year over year and 17% sequentially to $271.1 million and accounted for 19% of the total revenues. The year-over-year decline was primarily due to inventory corrections and weak demand environment in this end market. Our estimate for enterprise networking’s third-quarter revenues was pegged at $290.4 million.

Carrier infrastructure revenues, which constituted 22% of the total revenues, soared 17% year over year and 15% sequentially to $316.5 million. The rise was primarily driven by the increased demand for its wireless infrastructure. Our estimate for the division’s third-quarter revenues was pegged at $281.8 million.

Automotive/Industrial revenues grew 26% year over year to $106.5 million, mainly driven by strong growth in the automotive business. However, the segment’s revenues declined 3% sequentially. Revenues from this segment constituted 8% of the total revenues. Our estimate for the Automotive/Industrial’s third-quarter revenues was pegged at $110.1 million.

Consumer revenues, representing 12% of the total revenues, decreased 5% year over year to $168.7 million. However, sales from this end market increased 1% sequentially. Our estimate for Consumer’s third-quarter revenues was pegged at $185.7 million.

Marvell’s non-GAAP gross profit of $859.2 million reflected a year-over-year decline of 12.7%. However, the non-GAAP gross profit improved approximately 6.3% sequentially. The non-GAAP gross margin of 60.6% contracted 340 basis points (bps) on a year-over-year basis but expanded 30 bps sequentially. The sequential increase in the non-GAAP gross margin was mainly driven by higher revenues and cost improvements.

Non-GAAP operating expenses of $437 million increased 4% year over year but declined 2.4% sequentially.

Marvell’s non-GAAP operating margin of 29.8% contracted 690 bps from the year-ago quarter but improved 290 bps sequentially. The quarter-over-quarter expansion in the non-GAAP operating margin was mainly driven by an improved gross margin and lower operating expenses.

Balance Sheet and Cash Flow

Marvell exited the third quarter with cash and cash equivalents of $725.6 million compared with the previous quarter’s $423 million. The company’s long-term debt totaled $4.09 billion, higher than the previous quarter’s $3.13 billion.

The company generated cash worth $503 million through operational activities in the third quarter and $823.9 million in the first nine months of fiscal 2024.

Marvell returned $101.8 million to shareholders by repurchasing $50 million worth of common stock and $51.8 million in dividend payments in the third quarter. During the first nine months of fiscal 2024, the company repurchased stocks worth $50 million and paid out $154.9 million in dividend payments.

New Year Guidance

For the fourth quarter of fiscal 2024, Marvell expects revenues of $1.42 billion (+/- 5%), slightly lower than the Zacks Consensus Estimate of $1.46 billion. The non-GAAP gross margin is likely to be approximately 63.5%-64.5%, while non-GAAP operating expenses are estimated to be approximately $430 million.

The company projects non-GAAP earnings per share for the fourth quarter to be approximately 46 cents (+/- 5 cents). The consensus mark for fourth-quarter non-GAAP earnings is currently pegged at 49 cents per share.

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