Earnings Preview: Marvell Tech - Analyst Blog

Marvell Technology Group (MRVL) is scheduled to announce its fourth quarter 2011 results on March 3, 2011, and we see limited revisions in analyst estimates at this point of time.

Third Quarter Overview

Marvell Technology’s third quarter 2011 revenue grew 19.5% from the year-ago quarter, fueled by a 20% year-over-year revenue growth in its mobile and wireless end-markets.

Operating margin of 27.0% jumped 590 basis points from the year-ago quarter by virtue of better product mix and cost efficiencies. Adjusted earnings per share (EPS) were 41 cents, up from 30 cents reported in the year-ago quarter and ahead of the Zacks Consensus Estimate of 38 cents. The improved EPS was attributable to higher revenue, improved cost cutting methods, lower taxes and better gross margins.

Marvell Technology delivered a decent third quarter with its top and bottom lines surpassing the Zacks Consensus Estimates. Despite a conservative guidance for the fourth quarter, we believe the company is well positioned to capitalize on the rebound in enterprise networking spending.

Guidance

Given seasonal weakness that is likely to have affected the wireless and mobile business, Marvell expects revenues in the range of $900.0–$950.0 million (down sequentially) for the fourth quarter. Sequentially, wireless and mobile business revenue is expected to be down 10% due to seasonal weakness, while the storage segment is expected to remain flat. Non-GAAP EPS is projected in the range of 40–44 cents.

Agreement of Analysts

Out of the ten and eleven analysts providing estimates for the fourth quarter and fiscal 2011, respectively, only one made a downward revision to estimates in the past thirty days. We noticed a similar movement in fiscal 2012 estimates. We believe that a muted fourth quarter outlook and excess inventory in the networking business are the main reasons for the downward revision.

We noticed that most of the analysts were standing by their estimates during the last quarter. Most of the analysts believe that the improving trend in the PC end market will be a key near-term catalyst for the stock. Some analysts expect the company’s product cycles in various computing and consumer end-markets to enable revenue growth faster than the broader semiconductor market as demand improves.

Magnitude of Estimate Revisions

We did not observe any movements in the Zacks Consensus Estimates for the fourth quarter and fiscal year 2011, respectively, in the past ninety days. However, the Zacks Consensus Estimate for fiscal 2012 dropped from $1.56 to $1.54 in the past ninety days.

Recommendation

For the fourth quarter, seasonality will remain a concern. Though Marvell Technology’s strong execution and favorable position in the computing market are positives, we remain apprehensive regarding stiff competition in the semiconductor market from major players such as Intel Corp. (INTC), Texas Instruments Inc. (TXN) and LSI Corp. (LSI). A significant number of pending lawsuits and the company’s European exposure also concern us.