Marvell (MRVL) Q4 Earnings Match Estimates, Revenues Miss

Marvell Technology Group Ltd. (NASDAQ:MRVL) reported fourth quarter fiscal 2016 (ended on Jan 30, 2016) adjusted income (including stock-based compensation but excluding amortization, acquisition, restructuring and legal related expenses) of 5 cents per share, which matched the Zacks Consensus Estimate. Also, the reported earnings compared unfavorably with 18 cents reported in the year-ago quarter, mainly due to a lower revenue base.

Quarter Details

Marvell’s revenues fell 28.1% year over year to $616.2 million. The reported figure also fell short of the Zacks Consensus Estimate of $657 million. The company blamed softer-than-expected demand in its mobile and wireless segment for the weak top line performance. The company also projected revenues from mobile handset business to decline through fiscal year 2017.

By end markets, storage revenues increased 12% quarter over quarter mainly due to better-than-expected in from the HDD segment.

The networking business increased 8% sequentially as the company witnessed strong demand across most of its product areas.

Revenues from the mobile and wireless segment however decreased 34% sequentially mainly due to Marvell's exit from its mobile handset business.

Marvell’s adjusted gross profit came in at $317.8 million, down 28.2% on a year-over-year basis. Gross margin was almost flat on a year-over-year basis and came in at 51.6%, primarily due to unfavorable product mix and lower revenue base.

Adjusted operating expenses were down 15.3% year over year and came in at $297.6 million. Marvell’s adjusted operating income came in at $77.9 million compared with $91 million reported in the year-ago period. The results were primarily impacted by higher operating expenses as a percentage of revenues (up 734 bps).

The company reported adjusted net income (including stock-based compensation but excluding amortization, acquisition, restructuring and legal related expenses) of $22.1 million compared with $92.9 million reported in the year-ago quarter.

Marvell exited the quarter with cash, cash equivalents and short-term investments of $2.82 billion. Further, it generated $53 million of cash from operating activities and free cash flow of $47 million. The company carries no long-term debt.

During the quarter, Marvell paid a dividend of 6 cents per share amounting to $30.4 million. The company did not repurchase shares during the quarter. For fiscal year 2016, the company repurchased roughly 19.7 million shares worth $261 million.

The Pending Settlement

During the quarter, Marvell and Carnegie Mellon University (CMU) settled their patent infringement lawsuit. Both the parties mutually accepted the terms and conditions per which Marvell will pay $750 million in the first quarter of fiscal 2017.

Our Take

Marvell posted not-so-encouraging fourth-quarter fiscal 2016 results, wherein the bottom line matched the Zacks Consensus Estimate and the top line missed the same. Also, revenues fell on a year-over-year basis mainly due to lower revenues from its mobile business.

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. (NASDAQ:INTC) and Texas Instruments Inc. (NASDAQ:TXN) remains a headwind.

Currently, Marvell Technology has a Zacks Rank #3 (Hold).

A better-ranked stock worth considering the wider technology space is Stratasys Ltd. (NASDAQ:SSYS) , sporting a Zacks Rank #1 (Strong Buy).