Marvell Technology Group
) reported first quarter fiscal 2014 adjusted earnings per share
(EPS) of 12 cents, surpassing the Zacks Consensus Estimate of 7
cents. However, the quarter's result was 32.8% below the year-ago
level, mostly due to higher expenses. Shares rallied 6.54% in the
after hours, reflecting investor confidence in the quarter's
results and upbeat guidance, which exceeded Street expectations.
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Marvell reported revenues of $734.4 million in the first quarter,
down 7.8% year over year and 5.3% sequentially. The quarter's
result came within the company's guidance range of $700.0-$740.0
million and was above the Zacks Consensus Estimate of $722.0
million. As per management, product demand was better than
expected with share gains witnessed in the Storage and Networking
end markets. However, ongoing macro uncertainty, a lackluster PC
market and weakness in Mobile and Wireless end market dragged
down revenue growth.
By end market, Storage revenues were roughly flat sequentially
and represented around 53% of total sales. Strength in SSDs was
offset by a sluggish HDD business. Networking revenues were down
2% sequentially and were 24% of total sales. Amid continuing
weakness in the networking market, a double-digit sequential
growth was noticed in network processors and PON (Passive Optical
Network). Mobile and Wireless end markets declined roughly 24%
sequentially and represented roughly 18% of total revenue.
Reported gross margin grew 30 basis points (bps) year over year
to 54.3% due to favorable product mix. Operating margin was 5.8%,
down from 11.8% in the year-ago quarter. Total operating expenses
were $356.1 million, up 5.9% from the year-earlier quarter.
GAAP net income in the quarter was $53.2 million, or 11 cents per
share, compared with $94.5 million, or 16 cents in the year-ago
period. Excluding amortization and restructuring but including
stock-based compensation expenses, net income on non-GAAP basis
was $64.6 million, or 12 cents per share, compared with $111.5
million or 18 cents in the year-earlier period.
Balance Sheet & Cash Flow
Marvell ended the quarter with cash, cash equivalents and
short-term investments of $1.73 billion, down from $1.92 billion
in the prior quarter. Accounts receivable were $370.4 million
compared with $330.2 million in the prior quarter. Inventories
increased to $270.7 million from $250.4 million in the preceding
quarter. The company carries no long-term debt.
Cash from operating activities was $83.9 million in the first
quarter compared with $204.6 million in the prior quarter.
Capital expenditure was $20.1 million. Free cash flow was $53.0
million, which was roughly 7.2% of revenues, down from 20.1% of
revenues in the prior quarter.
During the quarter, Marvell Tech bought back 20.0 million shares
for a total value of $200.0 million. The company also paid $30.3
million toward quarterly cash dividend of 6 cents per common
Second Quarter Guidance
After witnessing a difficult 2013, management now expects many of
its investments and key initiatives to pay off in fiscal 2014
across all its end markets.
Marvell provided a solid second-quarter 2014 revenue forecast
anticipating increased traction in areas such as mobile handsets,
tablets, connectivity and SSDs.
Marvell Tech expects second quarter revenues in the range of
$770.0-$810.0 million, representing growth of 7.6% sequentially
at the mid-point. In terms of end market, the company expects
mobile and wireless end markets to grow in double-digits
sequentially, driven by ramp in its unified 3G platform for
mobile and advanced wireless connectivity solutions.
Storage market is expected to remain flat sequentially with
double-digit growth in SSD business and a lackluster HDD business
(mainly due to slowing PC market). The company expects networking
to grow low-to-mid single digits.
Gross margin is projected to be 52.2% (+/- 100 basis points) on a
GAAP basis and 52.5% (+/- 100 bps) on a non-GAAP basis. The
company anticipates operating expenses to be approximately $370.0
million (+/- $10.0 million) on a GAAP basis and $315.0 million
(+/- $10.0 million) on a non-GAAP basis. Research and development
expenses are estimated at approximately $255.0 million and
selling, general and administrative expenses at approximately
$60.0 million. Marvell expects non-GAAP operating margin of
approximately 13.0% (+/- 1.0%). Net interest (expense)/other
income are expected to be approximately $100.0 million. Non-GAAP
tax expense is likely to be $1.0 million.
The share count is projected at 517 million. Considering the
above-mentioned estimates, non-GAAP EPS is estimated within the
17-21 cents range. GAAP EPS is expected in the range of 7-11
cents. The Zacks Consensus Estimate for the second quarter is 12
Marvell delivered solid first quarter results crushing our
estimates. Revenue contributions from the end markets were in
line with expectations. Also, continuous share buybacks were a
positive. The second quarter guidance reflects strength and gives
an overall positive view for the rest of the year.
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
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 Rank #3 (Hold).