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Marvell Technology (NASDAQ:MRVL) Beats Q3 Sales Targets But Quarterly Guidance Underwhelms

StockStory - Thu Nov 30, 2023

MRVL Cover Image

Networking chips designer Marvell Technology (NASDAQ: MRVL) announced better-than-expected results in Q3 FY2024, with revenue down 7.7% year on year to $1.42 billion. On the other hand, next quarter's revenue guidance of $1.42 billion was less impressive, coming in 2.7% below analysts' estimates. It made a non-GAAP profit of $0.41 per share, down from its profit of $0.57 per share in the same quarter last year.

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Marvell Technology (MRVL) Q3 FY2024 Highlights:

  • Revenue: $1.42 billion vs analyst estimates of $1.40 billion (1.3% beat)
  • EPS (non-GAAP): $0.41 vs analyst estimates of $0.40 (2.2% beat)
  • Revenue Guidance for Q4 2024 is $1.42 billion at the midpoint, below analyst estimates of $1.46 billion
  • Free Cash Flow of $448.6 million, up from $1.4 million in the previous quarter
  • Inventory Days Outstanding: 99, down from 113 in the previous quarter
  • Gross Margin (GAAP): 38.9%, down from 50.6% in the same quarter last year

"Marvell delivered third quarter fiscal 2024 revenue of $1.419 billion, growing 6% sequentially, above the midpoint of guidance. Revenue from our datacenter end market grew over 20% sequentially in the third quarter, and we expect growth of over 30% sequentially in our fourth quarter," said Matt Murphy, Marvell's Chairman and CEO.

Moving away from a low margin storage device management chips in one of the biggest semiconductor business model pivots of the past decade, Marvell Technology (NASDAQ: MRVL) is a fabless designer of special purpose data processing and networking chips used by data centers, communications carriers, enterprises, and autos.

Semiconductor Manufacturing

The semiconductor industry is driven by demand for advanced electronic products like smartphones, PCs, servers, and data storage. The need for technologies like artificial intelligence, 5G networks, and smart cars is also creating the next wave of growth for the industry. Keeping up with this dynamism requires new tools that can design, fabricate, and test chips at ever smaller sizes and more complex architectures, creating a dire need for semiconductor capital manufacturing equipment.

Sales Growth

Marvell Technology's revenue growth over the last three years has been strong, averaging 27.4% annually. But as you can see below, its revenue declined from $1.54 billion in the same quarter last year to $1.42 billion. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).

Marvell Technology Total Revenue

Even though Marvell Technology surpassed analysts' revenue estimates, this was a slow quarter for the company as its revenue dropped 7.7% year on year. This could mean that the current downcycle is deepening.

Marvell Technology may be headed for an upturn. Although the company is guiding for a year-on-year revenue decline of 0.1% next quarter, analysts are expecting revenue to grow 13% over the next 12 months.

While most things went back to how they were before the pandemic, a few consumer habits fundamentally changed. One founder-led company is benefiting massively from this shift and is set to beat the market for years to come. The business has grown astonishingly fast, with 40%+ free cash flow margins, and its fundamentals are undoubtedly best-in-class. Still, its total addressable market is so big that the company has room to grow many times in size. You can find it on our platform for free.

Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business' capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.

Marvell Technology Inventory Days Outstanding

This quarter, Marvell Technology's DIO came in at 99, which is 7 days above its five-year average. These numbers suggest that despite the recent decrease, the company's inventory levels are higher than what we've seen in the past.

Key Takeaways from Marvell Technology's Q3 Results

With a market capitalization of $48.4 billion, a $725.6 million cash balance, and positive free cash flow over the last 12 months, we're confident that Marvell Technology has the resources needed to pursue a high-growth business strategy.

We were impressed by Marvell Technology's strong improvement in inventory levels. We were also glad its revenue and EPS outperformed Wall Street's estimates, driven by healthy demand for AI solutions in its data center segment. In fact, the company expects its data center revenue growth to accelerate from 20% to 30% next quarter. On the other hand, its consumer and automobile/industrial segments underperformed, weighing down the company's overall revenue guidance for next quarter. For the broader semiconductor universe, we've noticed softening trends in the consumer and automobile/industrial end markets this quarter. Overall, this was a mediocre quarter for Marvell Technology. The stock is up 2.2% after reporting and currently trades at $56.9 per share.

Marvell Technology may not have had the best quarter, but does that create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 50% year on year and best-in-class SaaS metrics it should definitely be on your radar.

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