Marvell Technology Group Ltd. MRVL reported preliminary third quarter fiscal 2016 adjusted loss (including stock-based compensation but excluding amortization, acquisition, restructuring and legal related expenses) of 1 cent per share. The preliminary figure compares unfavorably with the Zacks Consensus Estimate of earnings of 9 cents per share. Also, the loss compares unfavorably with earnings of 23 cents reported in the year-ago quarter, mainly due to a lower revenue base.
Quarter Details
Marvell’s revenues fell 27.5% year over year to $674.1 million. The preliminary figure fell short of the Zacks Consensus Estimate of $729 million. The company blamed softer-than-expected demand from storage end markets as well as lower revenues from its networking business for the weak top line performance.
By end markets, storage revenues declined 16% quarter over quarter mainly due to weak demand from the HDD segment.
The networking business decreased 8% sequentially as the company witnessed lower-than-expected demand for enterprise networking products.
Revenues from the mobile and wireless segment increased 15% sequentially mainly due to strong demand for low-end smartphones.
Marvell’s adjusted gross profit came in at $307.9 million, down 34.8% on a year-over-year basis. Gross margin also contracted 506 basis points (bps) on a year-over-year basis to 45.7% primarily due to unfavorable product mix and lower revenue base.
Adjusted operating expenses were down 11% year over year and came in at $312.4 million. Marvell’s adjusted operating loss came in at $4.5 million compared to an operating income of $120.9 million reported in the year-ago period. The results were primarily impacted by higher operating expenses as a percentage of revenues (up 859 bps).
The company reported adjusted net loss (including stock-based compensation but excluding amortization, acquisition, restructuring and legal related expenses) of $3.5 million or 1 cent per share compared to net income of $120.7 million or 23 cents in the year-ago quarter.
Marvell exited the quarter with cash, cash equivalents and short-term investments of $2.30 billion. Further, it generated $66.6 million of cash from operating activities and free cash flow of $54 million. The company carries no long-term debt. During the quarter, Marvell paid dividends of $30.3 million and repurchased shares worth $65.3 million.
Our Take
Marvell posted lower-than-expected preliminary third-quarter fiscal 2016 results. Not only did it post a loss but the top line also compared unfavorably with the Zacks Consensus Estimate. Also, revenues fell on a year-over-year basis mainly due to lower revenues from its networking business and soft performance in the storage end markets.
Though the macro headwinds and stringent regulations might put the company's financials under pressure in the near term, we believe that the strong demand for Marvell’s 4G LTE products could be a growth driver, going ahead. This will be supplemented with growth from the company’s wide range of newly-launched Internet of Things (IoT) solutions.
However, competition in the semiconductor market from major players such as Intel Corp. INTC and Texas Instruments Inc. TXN remains a headwind.
Currently, Marvell Technology has a Zacks Rank #3 (Hold).
Investors may instead consider VASCO Data Security International Inc. VDSI, sporting a Zacks Rank #1 (Strong Buy).
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