Marvell Inc. (MRVL) reported third quarter fiscal 2011 adjusted earnings per share (EPS) of 41 cents, ahead of the Zacks Consensus Estimate of 38 cents. The adjusted EPS excludes amortization of intangible assets and restructuring charges, but includes stock-based compensation expenses.
The quarter’s outperformance was driven by strong demand from the company’s mobile, wireless and storage end-markets.
Revenue
Marvell reported revenues of $959.3 million in the third quarter, up 19.5% from $803.1 million in the prior-year quarter. The quarter’s revenue was above the Zacks Consensus Estimate of $950.0 million and was at the higher end of the company’s guidance range of $930.0–$970.0 million. Overall, revenues were fueled by a 20% year-over-year revenue growth in Marvell’s mobile and wireless end-markets.
Operating Results
Gross margin on a GAAP basis surged 180 basis points (bps) year over year to 59.3%. Operating margin on a GAAP basis increased 590 bps year over year to 27.0%. Total operating expenses were $309.5 million, up 6.2% from $291.4 million in the earlier-year quarter.
GAAP net income in the quarter was $255.7 million, or 38 cents per share, compared to $201.6 million or 31 cents in the year-earlier period. Excluding stock-based compensation as well as other special items, net income on a non-GAAP basis was $307.3 million, or 45 cents per share, compared to $231.8 million or 35 cents in the year-earlier period.
However, including stock-based compensation, the adjusted net income was $277.8 million or 41 cents, compared to $197.4 million or 30 cents in the year-earlier quarter.
Balance Sheet & Cash Flow
Marvell ended the quarter with cash, equivalents and short-term investments of $2.68 billion, up from $2.4 billion in the prior quarter. Accounts receivables were $468.0 million, compared to $490.8 million in the prior quarter. Inventories decreased $11.3 million from the preceding quarter to $239.2 million. The company carries no long-term debt.
Cash from operating activities was $367.9 million in the second quarter, compared to $203.5 million in the prior-year quarter. Capital expenditure increased $1.1 million from the year-earlier quarter to $24.0 million. Free cash flow was $338.0 million, up from $196.0 million reported in prior-year quarter.
During the quarter, Marvell repurchased $60.6 million worth of its common outstanding shares.
Outlook
With an expected seasonal weakness affecting the wireless and mobile business, Marvell expects revenues to be in the range of $900.0–$950.0 million (down sequentially) for the fourth quarter of 2011. Non-GAAP EPS is expected to be in the range of 40–44 cents.
Our Take
The quarter’s results were decent as both top and bottom line surpassed the Zacks Consensus Estimate. The guidance for the fourth quarter was conservative, due to macroeconomic issues and seasonality.
We remain concerned about 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 concern us.
Currently, Marvell has a short-term Sell recommendation, as indicated by the Zacks #4 Rank.
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