A month has gone by since the last earnings report for Marvell Technology (MRVL). Shares have added about 10.9% 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 drivers.
Marvell’s Q1 Earnings & Revenues Surpass Estimates
Marvell reported first-quarter fiscal 2021 non-GAAP earnings of 18 cents, which surpassed the Zacks Consensus Estimate by 28.6%. However, it declined 12.5% from the year-ago quarter.
Marvell’s revenues of $694 million also outpaced the consensus mark of $678 million. Moreover, the figure increased 4.7% year over year. Strong demand for its networking products from the datacenter and 5G infrastructure end markets drove the results.
However, seasonal weakness and supply-chain impairments in the storage business due to the coronavirus outbreak were headwinds.
Quarter Details
In the end markets, storage revenues (37% of total revenues) fell 7% year over year to $259 million. The decline was mainly due to multiple manufacturing facilities in Southeast Asia coming under new shelter-in-place orders in connection with COVID-19. This negatively impacted the production of fiber channel adapters and hard disk drives.
However, Marvell’s SSD business remained resilient and grew sequentially, driven by higher shipments into datacenter applications.
The networking business (57%) revenues rose 15% year over year to $393.9 million, driven by strong supply-chain execution, which enabled the company to address the strong demand from cloud datacenters for its Smart NICs and security adapters. Moreover, the wireless infrastructure business grew sequentially.
Other product revenues (6%) during the fiscal first quarter decreased 3% on a year-over-year basis to $44.5 million.
Margins
Marvell’s non-GAAP gross profit was $435.6 million, up 2.6% on a year-over-year basis. However, non-GAAP gross margin contracted 130 basis points (bps) to 62.8%.
Non-GAAP operating expenses increased 1.7% year over year to $299.7 million. Non-GAAP operating margin remained flat year over year at 19.6%.
Balance Sheet
Marvell exited the quarter with cash and cash equivalents of $667.5 million compared with $647.6 million in the previous quarter.
The company’s long-term debt totaled $1.44 billion. Cash from operating activities amounted to $175.6 million compared with $55.8 million in the prior quarter.
During the quarter, Marvell returned $60 million to shareholders through $25 million in share repurchases and dividend payouts of around $40 million.
Guidance
Marvell’s guidance for the second quarter of fiscal 2021 takes into account the U.S. government’s export restriction on certain Chinese customers. The company temporarily widened the guidance range for revenues due to the uncertainties associated with coronavirus.
The company projects second-quarter fiscal 2021 revenues of $720 million (up or down up to 5%). The Zacks Consensus Estimate for revenues stands at $688.43 million, suggesting growth of 4.85% from the year-ago quarter’s reported figure.
Non-GAAP earnings per share are expected between 17 cents and 23 cents. The consensus mark of 14 cents indicates a 12.5% year-over-year decline.
Networking revenues for the second quarter are expected to witness low-single-digit growth sequentially, driven by 5G wireless infrastructure deployments.
Marvell also expects the storage business to start recovering from coronavirus impacts on the supply chain in the fiscal second quarter, although it anticipates the business to fully bounce back in the fiscal third quarter. Initial shipments of custom SSD controllers for system-level applications have started in the fiscal second quarter, which is encouraging. Storage revenues are expected to grow 10% sequentially in the fiscal second quarter.
Management expects Avera to contribute $300 million to revenues for fiscal 2021. Moreover, Avera is expected to bring an additional $4 billion to Marvell’s addressable market across the datacenter, carrier, enterprise and automotive end markets.
In the third quarter of fiscal 2021, based on recent bookings and firm backlog position, Marvell expects its 5G business to continue to ramp up strongly.
How Have Estimates Been Moving Since Then?
Estimates review followed an upward path over the past two months. The consensus estimate has shifted 46.03% due to these changes.
VGM Scores
Currently, Marvell has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. However, 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.
Outlook
Marvell has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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