Marvell Technology
Group (MRVL) has reported fourth quarter fiscal 2012
adjusted earnings per share (EPS) of 16 cents, beating the Zacks
Consensus Estimate of 12 cents. However, the EPS was 55.3% below
the year-ago level, mostly due to lower revenue and higher
expenses. Overall results were affected by macro uncertainties,
natural calamities (earthquake in Japan and massive floods in
Thailand), a lackluster mobile business in China and product
transitions at one of Marvell’s largest customers.
Revenue
Marvell reported revenues of $742.7
million in the fourth quarter, down 17.5% year over year. The
reported revenue came within the company’s guided range of
$735.0–$745.0 million (revised in January) and below the Zacks
Consensus Estimate of $752.0 million. The unexpected drop in
year-over-year comparison was due to the adverse effect of the
Thailand flood and softer demand for mobile and wireless products,
particularly in China.
Revenues from the mobile and
wireless end market fell 21.0% from the prior quarter and
contributed 31% to the total revenue. The sequential decline was
mostly seasonal and the Chinese customers’ decision to keep their
respective inventory level low. Marvell added that the company is
now serving over 20 mobile customers with more than 40 handsets in
that region. Moreover, the company started shipping its WCDMA
solutions to new customers during the quarter.
Revenues from the storage end
market decreased 31.0% from the prior quarter, mainly due to lower
hard disk drive demand following the flood.
Marvell also witnessed a 1.0%
sequential drop in its revenues from the networking end market. The
sequential decline was because of lower demand from its large
customers, which are not showing any interest presently to pile
their stocks with Marvell chips.
Operating
Results
Reported gross margin declined 460
basis points (bps) year over year to 54.1% due to higher commodity
costs and foundry prices. Operating margin decreased 1460 bps year
over year to 9.4%. Total operating expenses were $331.6 million, up
5.9% from the earlier-year quarter. Higher operating expenses
reflect continued investments in relation to product launches.
GAAP net income in the quarter was
$80.7 million, or 13 cents per share, compared to $222.9 million,
or 38 cents in the year-ago period. Excluding amortization and
restructuring but including stock-based compensation expenses, net
income on non-GAAP basis was $95.2 million, or 16 cents per share,
compared to $241.6 million, or 36 cents in the year-earlier
period.
Balance Sheet & Cash
Flow
Marvell ended the quarter with
cash, equivalents and short-term investments of $2.3 billion, down
from $2.4 billion in the prior quarter. Accounts receivables were
$407.3 million, compared to $451.1 million in the prior quarter.
Inventories increased to $354.1 million from $310.0 million in the
preceding quarter. The company carries no long-term debt.
Cash from operating activities was
$69.1 million in the fourth quarter, compared to $261.6 million in
the prior quarter. Capital expenditure was $26.4 million. Free cash
flow was $38.0 million, which was roughly 5.0% of revenue. With an
established business structure, Marvell has overcome the cyclical
nature of the semiconductor sector and macroeconomic challenges to
generate positive free cash flow.
During the quarter, Marvell Tech
bought back 13.5 million shares for a total value of $186.5
million.
First Quarter 2013
Outlook
Marvell has already faced the
severity of the Thailand flood. But now the company expects to tide
over from the recovery in the hard disk drive industry. Despite
being cautious, management outlined some positive aspects that
could impact the upcoming quarter positively. During the last
quarter, Marvell noticed that its China TD business is producing
material results, SSD (solid state drive) revenue has exceeded
expectations and networking business is growing on new products and
share gains. Accordingly, Marvell expects steady improvement in
each of the end markets in fiscal 2013.
Revenue from the mobile and
wireless end market is expected to decline by a high single digit.
In the networking end market, revenues are projected to remain flat
sequentially. Given the possibility of recovery in the hard drive
supply, Marvell anticipates the storage end markets to increase
between 10% and 20% sequentially. Overall, Marvell Tech expects
first quarter revenue to be flat to up 6% sequentially.
Non-GAAP gross margin is projected
in the range of 54.0% to 55.0%. The company anticipates non-GAAP
operating expenses to be approximately $295.0 million, plus or
minus $5 million. Research and development (R&D) expenses are
estimated at approximately $237.0 million and selling, general and
administrative expenses at approximately $58.0 million. Marvell
expects operating margin of approximately 16% (+/- 1.0%). Net
interest expense and other income are expected to be approximately
a $2 million benefit. Non-GAAP tax expense will be $2.0
million.
The diluted share count is
projected at 610 million. Considering all the above, non-GAAP EPS
is estimated roughly at 20 cents (+/- 2 cents). GAAP EPS is
expected to be lower than the non-GAAP estimate by about 7 cents
(+/-1 cent). The Zacks Consensus Estimate for the fourth quarter is
14 cents.
Overall, management remains
optimistic about its investment in TD-SCDMA and SSD and expects
improved results throughout the year. Management also commented
that it will remain focused on investments on initiatives designed
to increase revenue and profits through new products and share
gains. The chipmaker is positive about its long-term growth story
in China and plans to invest more in the region to sustain its
leadership position there.
Our Take
The quarter’s results were not
decent enough to turn on the moods of investors. Though Marvell’s
EPS was above the Zacks Consensus Estimate, the top line missed.
Revenue contributions from all the end-markets were poor. But
continuous share buybacks were the quarter’s positives. The first
quarter guidance reflects some positive signs. We are also pleased
with the improving demand situation in China and new product
adoption.
We see that China Mobile is
continually increasing its investments in TD-SCDMA and TD LTE.
Given that Marvell has a strong product line-up in both of these
technologies, we believe the company will be able to take advantage
of this expected growth.
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 Intel Corp. (INTC),
Texas Instruments Inc. (TXN) and LSI
Corp. (LSI). We are also concerned about the significant
number of pending lawsuits, higher material costs and the company’s
European exposure.
Currently, Marvell Technology has a
Zacks #3 Rank, implying a short-term Hold recommendation.
INTEL CORP (INTC): Free Stock Analysis Report
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