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Marvell Technology Group Ltd. (MRVL) Earnings Preview: Can Q2 Results "Marvell" Investors?

 August 21, 2013 03:27 PM
 


Marvell Technology Group Ltd. (NASDAQ:MRVL) is expected to report its second quarter financial results on Aug.22, with conference call at 1:45 pm Pacific Time (4.45 Eastern Time).

California-based Marvell's microprocessor architecture and digital signal processing drive multiple platforms including high-volume storage solutions, mobile and wireless, networking, and consumer products. The company, which ships over one billion chips a year, has operations worldwide and more than 7,000 employees.

Wall Street expects Marvell to earn 19 cents a share, according to analysts polled by Thomson Reuters. The consensus estimate implies about 21 percent fall from last year's 24 cents a share. The company sees non-GAAP EPS of 17 to 21 cents a share.

[Related -Marvell Technology Group Ltd. (MRVL): How Q3 Earnings Will Fare?]

Marvell may want to continue its upbeat earnings momentum similar to past two quarters when its earnings beat Street estimate by 35.7 percent and 46.2 percent, respectively. Over the past 90 days, the average earnings view grew a penny while two analysts have increased their profit targets in the last 30 days.

Quarterly revenue is projected to fall 3 percent to $791.3 million from $816.1 million in the corresponding quarter prior year. Marvell expects second quarter revenue in the range of $770 million to $810 million.

Marvell's results would benefit from solid momentum in networking and wireless. Earlier this month, Marvell secured two important deals in its Armada category.

Chinese PC firm Lenovo has selected Marvell's Armada 1500 Series system-on-chip (SoC) platform (88DE3100) for its 60-inch Android Smart TV models, the K82 and K72.

[Related -Marvell Technology Group Ltd. (MRVL): RBC Capital's Top Pick]

In addition, China Mobile's first self-branded smartphone, the Android-based M601, is powered by the Marvell Armada Mobile PXA988 unified 3G platform, which integrates a powerful processor with a mature and proven cutting-edge cellular modem.

Marvell is making strides in both baseband (China market) and connectivity such as 8897 chip, .11ac MIMO Combo that likely pressures incumbents on performance in the mid- to high-end segment.

"We believe solid switching results from Juniper and Brocade and recovering cellular SoC share in low-cost 3G/TD-SCDMA devices in China will drive near term results," UBS analyst Steven Chin wrote in a note to clients.

Mobile and Wireless growth could be considerable through fiscal 2014 on wins for its dual- and quad-core solutions including at Samsung, ZTE, Huawei, and white box. Marvell could see an impact from focused hiring on the mobile side, which will target improving software solutions and protocol stack in-order to deliver full platform solutions.

While the latest Armada 1500 apps processor wins in the Google Chromecast and Lenovo Smart TVs should drive meaningful units, the longer term opportunity in IPTV apps is unclear. Google TV switched to the Armada 1500 in early2012, but volumes have been modest with only several set-top and LCD TV wins.

The Street may want to hear additional color on the long-term prospects of the Armada platform.

Meanwhile, weak PC demand will continue to impact growth in Marvell's HDD storage SoC business, which still accounts for 40 percent of sales. However, Solid State Drive SoCs, which represents about 6 percent of sales, should bring some growth to the segment.

Moreover, gross margin number for the quarter and the outlook would be another focus area due to its heavy reliance on wireless business. The company sees second-quarter gross margin of 51.5 to 53.5 percent.

"We expect the higher F2H wireless sales mix to lead to 50bps of gross margin decline in the coming quarters," Chin noted.

Investors should also watch inventory levels. During the first quarter earnings call, the company noted that it has begun shipments to a new tier-one OEM and the market would expect the company to comment on the progress with its unified 3G platform and its LTE solution.

For the first quarter ended May 4, the company reported net income of $53.2 million or 11 cents per share, compared to $94.5 million or 16 cents per share for the year-ago quarter. Excluding items, it earned 19 cents per share. Net revenue for the first quarter fell 8 percent to $734.37 million.

MRVL stock, which trades about 14 times its forward earnings, has gained 16 percent since its first quarter report. They were trading between $6.98 and $13.51 during the past 52-weeks.

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