Marvell Technology (NASDAQ:MRVL) Exceeds Q1 Expectations, Stock Jumps 15.4%

Adam Hejl /
2023/05/25 4:08 pm EDT

Networking chips designer Marvell Technology (NASDAQ: MRVL) reported Q1 FY2024 results that beat analyst expectations, with revenue down 8.65% year on year to $1.32 billion. Guidance for next quarter's revenue was $1.33 billion at the midpoint, which is 1.53% above the analyst consensus. Marvell Technology made a GAAP loss of $168.9 million, down on its loss of $165.7 million, in the same quarter last year.

Is now the time to buy Marvell Technology? Access our full analysis of the earnings results here, it's free.

Marvell Technology (MRVL) Q1 FY2024 Highlights:

  • Revenue: $1.32 billion vs analyst estimates of $1.3 billion (1.67% beat)
  • EPS (non-GAAP): $0.31 vs analyst estimates of $0.29 (5.76% beat)
  • Revenue guidance for Q2 2024 is $1.33 billion at the midpoint, above analyst estimates of $1.31 billion
  • Free cash flow of $108.6 million, down 63.5% from previous quarter
  • Inventory Days Outstanding: 122, down from 133 previous quarter
  • Gross Margin (GAAP): 42.2%, down from 52.5% same quarter last year

"We delivered first quarter fiscal 2024 revenue of $1.322 billion, above the midpoint of guidance, and are forecasting sequential revenue growth in the second quarter. We are expecting revenue growth to accelerate in the second half of this fiscal year, accompanied by gross and operating margin expansion," said Matt Murphy, Marvell's President 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.

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

Sales Growth

Marvell Technology's revenue growth over the last three years has been very strong, averaging 31% annually. But as you can see below, last year quarterly revenue declined from $1.45 billion to $1.32 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

Despite Marvell Technology revenues beating analyst estimates, this was still a slow quarter with a 8.65% revenue decline. Marvell Technology's revenue is continuing to decline, signal that the current downcycle is deepening.

Year on year revenue growth went from positive to negative this quarter, and Marvell Technology expects it to stay negative next quarter with an estimated decline of 12.3% YoY and analysts think the declines will continue, with next twelve months estimated at 2% declines.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) are an important metric for chipmakers, as it reflects the capital intensity of the business 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 inventory days came in at 122, 29 days above the five year average, suggesting that despite the recent decrease the inventory levels are still higher than what we used to see in the past.

Key Takeaways from Marvell Technology's Q1 Results

With a market capitalization of $39.5 billion, more than $1.03 billion in cash and with free cash flow over the last twelve months being positive, the company is in a very strong position to invest in growth.

We were very impressed by the strong improvements in Marvell Technology’s inventory levels. And we were also excited to see that revenue and earnings outperformed Wall St’s expectations. Guidance for next quarter was also slightly ahead for both revenue and EPS. Additionally, management is bullish on the rest of the year, stating that "We are expecting revenue growth to accelerate in the second half of this fiscal year, accompanied by gross and operating margin expansion" and arguing that AI is a tailwind for the company. On the other hand, it was less good to see deterioration in gross and operating margin. Overall, it was a mixed quarter, but the outlook and accompanying commentary are bright spots. The company is up 15.8% on the results and currently trades at $57.25 per share.

Should you invest in Marvell Technology right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.