Marvell (MRVL) Posts Loss In Q1, Stock Up On Strong View

Marvell Technology Group Ltd. (NASDAQ:MRVL) reported dismal first quarter fiscal 2017 (ended on Apr 30, 2016) results. The company posted a loss and revenues missed the Zacks Consensus Estimate.

Despite this, shares of the company were up more than 9% in after-hours trading, primarily due to encouraging second-quarter outlook.

The company reported adjusted loss (including stock-based compensation but excluding amortization, acquisition, restructuring, legal related expenses and other one-time items) of 4 cents per share, which compared unfavourably with the Zacks Consensus Estimate of a breakeven. The bottom line deteriorated from earnings of 8 cents in the year-ago quarter, mainly due to a lower revenue base.

Quarter Details

Marvell’s revenues fell 25.3% year over year to $540.8 million. The reported figure also missed the Zacks Consensus Estimate of $597 million. The company blamed softer-than-expected demand in its storage and mobile and wireless segment for the weak top line performance. The company also projected revenues from mobile handset business to decline through fiscal 2017.

By end markets, storage revenues decreased 16% quarter over quarter mainly due to lower-than-expected demand from the HDD segment.

The networking business increased 5% sequentially mainly due to strong demand in enterprise networking business.

Revenues from the mobile and wireless segment however decreased 29% sequentially mainly due to Marvell's exit from its mobile handset business.

Marvell’s adjusted gross profit came in at $282.1 million, down 24.2% on a year-over-year basis. Gross margin however increased 75 basis points (bps) on a year-over-year basis and was 52.2%, primarily due to a favorable product mix.

Adjusted operating expenses were down 10.6% year over year to $302.6 million. Marvell’s adjusted operating loss came in at $20.5 million as against operating income of $33.9 million reported in the year-ago period. The results were primarily impacted by higher operating expenses as a percentage of revenues (up 923 bps).

The company reported adjusted net loss (including stock-based compensation but excluding amortization, acquisition, restructuring, legal related expenses and other one-time items) of $17.9 million as against a net income of $37.9 million in the year-ago quarter.

Marvell exited the quarter with cash, cash equivalents and short-term investments of $1.62 billion. Further, it used $609.6 million of cash from operating activities and free cash flow of ($625) million. The company carries no long-term debt.

During the quarter, Marvell paid a dividend of 6 cents per share. The company did not repurchase any shares during the quarter.

Outlook

Marvell expects second-quarter fiscal 2017 revenues in the range of $625 million – $635 million, higher than the Zacks Consensus Estimate of $590 million.

Management expects non-GAAP gross margin to be in the range of 52% to 54% in the current quarter while non-GAAP operating expenses are expected to be in the range of $270 million to $280 million. The company expects non-GAAP earnings per share to be 10 cents to 12 cents while the Zacks Consensus Estimate is pegged at 2 cents.

Our Take

Marvell’s first-quarter fiscal 2017 results were disappointing. The company posted a loss and revenues fell short of expectations. Also, revenues slumped on a year-over-year basis mainly due to a decline in its storage and mobile business. However, the company provided encouraging second-quarter guidance.

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. This will be supported by 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. (NASDAQ:INTC) and Texas Instruments Inc. (NASDAQ:TXN) remains a headwind.

Currently, Marvell Technology has a Zacks Rank #4 (Sell).

A better-ranked stock worth considering the wider technology space is Box, Inc. (NYSE:BOX) , sporting a Zacks Rank #1 (Strong Buy).