Marvell Technology Group
) reported third quarter fiscal 2013 adjusted earnings per share
(EPS) of 14 cents, marginally missing the Zacks Consensus
Estimate of 15 cents. The quarter's result was also 58.9% below
the year-ago level, mostly due to lower revenue.
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Marvell reported revenues of $780.9 million in the third quarter,
down 17.8% from $950.4 million in the year-ago quarter. The
quarter's result came below the company's guidance range of
$800.0-$850.0 million. The year-over-year decline was mainly due
to macro-economic slowdown and a lackluster PC market, which
badly affected its chip demand.
Revenues from the mobile and wireless end market fell 10.0% from
the prior quarter. The segment contributed 25.0% to total
revenue. The decline was due to lower-than-expected demand for
gaming solutions and an inventory correction at its enterprise
customers. Revenues from the storage end market declined 3.0%
from the prior quarter, mainly due to lower HDD TAM (total
available market), partially offset 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 1.0% revenue decline in its
networking end market driven by inventory corrections at its
Reported gross margin declined 460 basis points (bps) year over
year to 52.0% due to higher commodity costs and product mix.
Operating margin was 8.6%, down from 20.1% in the year-ago
quarter. Total operating expenses were $339.6 million, down 2.1%
from the year-earlier quarter.
GAAP net income in the quarter was $68.8 million, or 12 cents per
share, compared with $195.1 million, or 32 cents in the year-ago
period. Excluding amortization and restructuring but including
stock-based compensation expenses, net income on non-GAAP basis
was $82.6 million, or 14 cents per share, compared with $213.9
million, or 35 cents in the year-earlier period.
Balance Sheet & Cash Flow
Marvell ended the quarter with cash, cash equivalents and
short-term investments of $2.02 billion, down from $2.13 billion
in the prior quarter. Accounts receivable were $374.8 million,
compared with $390.8 million in the prior quarter. Inventories
decreased to $324.0 million from $345.7 million in the preceding
quarter. The company carries no long-term debt.
Cash from operating activities was $136.6 million in the third
quarter, compared with $189.2 million in the prior quarter.
Capital expenditure was $19.4 million. Free cash flow was $113.0
million, which was roughly 14.4% of revenue, significantly down
from 21.0% of revenue in the prior quarter.
During the quarter, Marvell Tech bought back 23.0 million shares
for a total value of $203.0 million. The company also paid $33.5
million toward quarterly cash dividend of 6 cents per common
Fourth Quarter Guidance
Marvell provided a weak fourth-quarter revenue forecast citing
weakness in the personal computer market, which will continue to
affect its HDD businesses.
Marvell Tech expects fourth quarter revenue in the range of
$700.0-$740.0 million, representing a decline of 8% sequentially
at the mid-point. In terms of end market, the company expects
mobile and wireless end market to decrease 30.0% sequentially due
to continued demand weakness from smartphone customers.
Networking end market is expected to improve in the low
single-digit range sequentially attributable to growth of the
switching business. Storage end market is expected to remain
roughly flat sequentially along with better-than-expected SSD
Non-GAAP gross margin is projected in the range of 52.5% to
53.5%. The company anticipates non-GAAP operating expenses to be
approximately $310.0 million, plus or minus $5.0 million.
Research and development expenses are estimated at approximately
$248.0 million and selling, general and administrative expenses
at approximately $62.0 million. Marvell expects operating margin
of approximately 10.0% (+/- 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 560 million. Considering
the above-mentioned estimates, non-GAAP EPS is estimated roughly
at 13 cents. GAAP EPS is expected to be lower than the non-GAAP
estimate by about 8 cents. The Zacks Consensus Estimate for the
fourth quarter is 15 cents.
The quarter's results were disappointing with Marvell's bottom
line missing the Zacks Consensus Estimate. Revenue contributions
from the end markets were soft. But continuous share buybacks
were a positive. The fourth quarter guidance reflects signs of
improving networking and storage end markets. But smartphone
weakness and guidance cut at its largest HDD customers
Western Digital Corp.
Seagate Technology plc
) concern 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
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.