Marvell Technology Group
) reported second quarter fiscal 2013 adjusted earnings per share
(EPS) of 19 cents, missing the Zacks Consensus Estimate of 22
cents. The quarter's result was also 24.6% below the year-ago
level, mostly due to lower revenue and higher expenses.
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Marvell reported revenues of $816.1 million in the second quarter,
down 9.1% from $897.5 million in the year-ago quarter. The
quarter's result came below the company's guidance range
$840.0-$890.0 million. The decline was mainly due to macro-economic
slowdown, which affected Marvell's storage and mobile businesses.
The company witnessed lower volumes at its largest North American
cellular customer, and slowing demand from Chinese smartphone
Revenues from the mobile and wireless end market fell 5.0% from the
prior quarter. The segment contributed 27.0% to total revenue.
Revenues from the storage end market increased 7.0% from the prior
quarter, mainly driven by increased shipment of 500-gigabyte per
platter mobile drives and strong demand for SSDs (solid state
drive). The segment contributed 47.0% of total sales. Marvell also
noticed outperformance in its networking end market driven by
strength of new products and share gains.
Reported gross margin declined 470 basis points (bps) year over
year to 53.2% due to higher commodity costs and foundry prices.
Operating margin was 11.1%, down from 21.7% in the year-ago
quarter. Total operating expenses were $344.0 million, up 5.9% from
the earlier-year quarter. Higher operating expenses reflect
continued investments related to product launches.
GAAP net income in the quarter was $93.1 million, or 16 cents per
share, compared with $192.4 million, or 31 cents in the year-ago
period. Excluding amortization and restructuring but including
stock-based compensation expenses, net income on non-GAAP basis was
$108.8 million, or 19 cents per share, compared with $204.1
million, or 33 cents in the year-earlier period.
Balance Sheet & Cash Flow
Marvell ended the quarter with cash, cash equivalents and
short-term investments of $2.13 billion, down from $2.20 billion in
the prior quarter. Accounts receivable were $390.8 million,
compared with $417.4 million in the prior quarter. Inventories
decreased to $345.7 million from $353.4 million in the preceding
quarter. The company carries no long-term debt.
Cash from operating activities was $189.2 million in the second
quarter, compared with $198.7 million in the prior quarter. Capital
expenditure was $10.8 million. Free cash flow was $174.0 million,
which was roughly 21.0% of revenue, slightly down from 22.4% of
revenue in the prior quarter.
Share Buyback & Dividend
During the quarter, Marvell Tech bought back 20.0 million shares
for a total value of $250.0 million.
Considering its cash position, Marvell decided to return
shareholder value through dividend payment. The quarterly cash
dividend of 6 cents per common shares will be paid in October 2012.
Third Quarter Guidance
Marvell Tech expects third quarter revenue in the range of
$800.0-$850.0 million. In terms of end market, the company expects
mobile and wireless end market to decrease in the mid-single digit
range sequentially due to continued demand weakness from smartphone
Networking end market is expected to improve in the low
single-digit range sequentially on new product adoption. Storage
end market is expected to increase low single digits sequentially
aided by strength in 500 gigabytes mobile platter and SSD
Non-GAAP gross margin is projected in the range of 33.0% to 34.0%.
The company anticipates non-GAAP operating expenses to be
approximately $300.0 million, plus or minus $5.0 million. Research
and development expenses are estimated at approximately $245.0
million and selling, general and administrative expenses at
approximately $55.0 million. Marvell expects operating margin of
approximately 17.0% (+/- 1.0%). Net interest (expense)/other income
are expected to be approximately $2.0 million. Non-GAAP tax expense
is likely to be $2.0 million.
The diluted share count is projected at 580 million. Considering
the above-mentioned estimates, non-GAAP EPS is estimated roughly at
24 cents. GAAP EPS is expected to be lower than the non-GAAP
estimate by about 8 cents (+/-1 cent). The Zacks Consensus Estimate
for the third quarter is 25 cents.
The quarter's results were disappointing with Marvell's bottom line
missing the Zacks Consensus Estimate. Revenue contributions from
the end markets, barring mobile, were modest. But continuous share
buybacks were a positive. The third quarter guidance reflects signs
of improving networking and storage end markets. But the smartphone
weakness concerns us.
We remain positive on Marvell's diverse revenue model and stable
balance sheet. However, we remain concerned about stiff competition
in the semiconductor market from major players, such as
Texas Instruments Inc.
). We are also concerned about the significant number of pending
lawsuits, higher material costs and the company's European
Currently, Marvell Technology has a Zacks #4 Rank, implying a
short-term Sell rating.