Marvell Technology Group (MRVL) reported third-quarter fiscal 2014 adjusted earnings (including stock-based compensation but excluding amortization, acquisition, restructuring and legal related expenses) of 24 cents per share which beat the Zacks Consensus Estimate of 17 cents per share. On a year-over-year basis, earnings per share improved 62.5% primarily due to higher revenues and margin expansion.
Quarter Details
Marvell reported revenues of $931.2 million in the third quarter, up 19.3% year over year, and surpassed the Zacks Consensus Estimate of $871.0 million. The quarter’s revenues also came ahead of management’s guidance range of $850.0 million–$890.0 million.
By end market, Storage revenues increased 16.0% from the year-ago quarter due to strength in solid state drives (SSDs) and hard disk drive (HDD) business. Networking revenues decreased 3% on a sequential basis due to soft demand from enterprise network market.
Mobile and Wireless end markets increased 63% sequentially due to device launches by Marvell’s customers and higher number of unit shipments of W-CDMA and TD-SCDMA 3G products.
Marvell’s adjusted gross margins dropped 258 basis points (bps) on a year-over-year basis to 50.1%. On a year-over-year basis, the company witnessed a 114 bps expansion in its adjusted operating margins primarily due to lower operating expenses as a percentage of revenues (down 371 bps).
Marvell’s adjusted net margins (including stock-based compensation but excluding amortization, acquisition, restructuring and legal related expenses) expanded 233 bps on a year-over-year basis to 12.9%.
Marvell ended the quarter with cash, cash equivalents and short-term investments of $1.80 billion compared to $1.73 billion in the previous quarter. The company generated $177.2 million cash from operating activities and had free cash flow of $157.0 million. The company carries no long-term debt.
During the quarter, Marvell bought back shares worth $71.5 million and paid dividends of $29.5 million.
Guidance
Marvell expects fourth-quarter revenues in the range of $880.0 million–$920.0 million, a sequential decline of 3%. In terms of end market, the company expects mobile and wireless end markets to decline in low single-digits sequentially due to seasonal declines in non-mobile connectivity.
Revenues from Storage are expected to decrease in low-to-mid single digits due to seasonality. The company expects networking to decline in low single-digits.
Management expects non-GAAP gross margin to be 50.0% (+/-100 bps) for the forthcoming quarter while non-GAAP operating expenses are expected to be $315.0 million (+/-$10 million). The company expects non-GAAP earnings per share to be 25 cents (+/- 2 cents).
Our Take
Marvell delivered decent third-quarter results which came ahead of the Zacks Consensus Estimate. Revenue contributions from the end markets were in line with the expectations. Also, continuous share buybacks were a positive. However, the company’s fourth-quarter revenue forecast was tepid due to seasonality factors.
Nonetheless, 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), Texas Instruments Inc. (TXN) and LSI Corp. (LSI). Sluggish macroeconomic conditions coupled with higher material costs and the company’s European exposure are the near-term headwinds.
Currently, Marvell Technology has a Zacks Rank #3 (Hold).
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