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Dell, Marvell Slide Post Earnings: What Comes Next for the Tech Stocks?

Published 12/01/2023, 08:13 AM
Updated 07/09/2023, 06:31 AM

Several tech companies, including Marvell (NASDAQ:MRVL) Technology and Dell Technologies (NYSE:DELL), were seen trading lower in early Friday trade amid softer-than-expected earnings for the third calendar quarter.

Dell Trails Analyst Estimates Despite AI Boost

Weakness in demand for corporate PCs prompted Dell to deliver results for the third quarter that trailed analyst expectations. Revenue fell 10% year-over-year to $22.25 billion, a stronger-than-expected contraction as analysts were looking for $23 billion in Q3 sales. Weakness was observed in the Storage revenue, where sales came in at $3.84 billion vs. expected $4.06 billion.

Moreover, Client Solutions Group saw its sales drop to $12.28 billion, widely missing the expected $12.97 billion. Similarly, Commercial revenue was reported at $9.84 billion while the Street was looking for $10.39 billion.

On the bottom line, the adjusted operating income was $1.96 billion, ahead of the expected $1.78 billion. As a result, Dell was able to deliver $1.88 in adjusted EPS for the third quarter, easily ahead of the consensus of $1.46. For the same period last year, the company posted a profit per share of $2.30.

"We have proven our ability to generate strong cash flow through profitability and working capital efficiency, including $9.9 billion of cash flow from operations over the last twelve months," said Yvonne McGill, chief financial officer, Dell Technologies.

"Our long-term financial framework and capital allocation plan continue to deliver results, with $1 billion returned to shareholders in the third quarter through share repurchases and dividends."

Dell said it concluded the quarter with remaining performance obligations totaling $39 billion, recurring revenue amounting to $5.6 billion, which is reflecting a 4% increase compared to the previous year.

Deferred revenue reached $29.1 billion, marking a 7% year-over-year growth, primarily attributed to rises in software and hardware maintenance agreements. The company reported a cash and investment balance of $9.9 billion.

On the AI front, Dell informed investors that it shipped more than $500 million worth of AI servers in the quarter. As a result, the company’s servers and networking business was up 9% sequentially in Q3, fueled by strong customer interest in generative AI.

Another positive was that Dell said it expects revenue growth to exceed its long-term framework (~3-4%) in FY25. All taken together, Dell stock was down about 4% in early Friday trade.

Marvell

Shares in Marvell Technology were also seen trading lower in pre-market Friday trade after the company forecast net revenue for the fourth quarter that trailed the average analyst estimate. Marvell sees Q4 sales at $1.42 billion, below the consensus of $1.46 billion. As a result, shares fell about 4% in pre-open New York trade on Friday.

For the third quarter, the company said it earned 41 cents, in line with expectations, but below 57 cents reported for the same period last year. Net revenue fell nearly 8% YoY to $1.42 billion, just ahead of the Street and the company’s guidance at $1.4 billion. The adjusted gross margin contracted by as much as 340 basis points to 60.6%, below the expected 60.8%.

Sales in the Datacenter segment, which hosts high-end AI chips, fell 11% YoY to $555.8 million, but still easily ahead of the consensus of $529 million. Marvell said it expects growth in this sector of over 30% sequentially in the fourth quarter.

"The diversification of our portfolio is serving us well, with strong growth from AI and cloud carrying us through a softening demand environment in other end markets. These dynamics are reflected in our forecast for overall revenue to be flat sequentially in the fourth quarter at the midpoint of guidance,” said Matt Murphy, Marvell's Chairman and CEO.

This upside was offset by weakness in the Consumer business, where sales decreased by 5.4% annually to $168.7 million, trailing the expected $186.4 million. Similarly, sales in Enterprise networking came in lower-than-expected – $271.1 million vs. $293.6 million. Marvell’s Carrier Infrastructure saw its sales rise as much as 17% annually, easily topping the numbers expected by Wall Street analysts.

Despite the notable short-term cyclical challenges in the Carrier and Enterprise Networking segments, analysts are likely to still perceive Marvell as a crucial player in facilitating high-speed Data Center connectivity and benefiting from the ongoing expansion of AI infrastructure.

Summary

IT infrastructure provider Dell reported weaker-than-expected sales for the third quarter despite the surging AI sales, prompting shares to decline on Friday. Similarly, chipmaker Marvell continues to see weakness in certain sectors, which is offsetting strength in the Data Center business. As a result, the company offered a more conservative view for this quarter, which is likely to weigh on shares in the near-term.

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Shane Neagle is the EIC of The Tokenist. Check out The Tokenist’s free newsletter, Five Minute Finance, for weekly analysis of the biggest trends in finance and technology.

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