Networking chips designer Marvell Technology (NASDAQ: MRVL) reported results ahead of analyst expectations in the Q1 FY2023 quarter, with revenue up 73.8% year on year to $1.44 billion. Guidance for next quarter's revenue was $1.51 billion at the midpoint, which is 1.73% above the analyst consensus. Marvell Technology made a GAAP loss of $165.7 million, down on its loss of $88.2 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 FY2023 Highlights:
- Revenue: $1.44 billion (1.48% beat)
- EPS (non-GAAP): $0.52 vs analyst estimates of $0.51 (1.33% beat)
- Revenue guidance for Q2 2023 is $1.51 billion at the midpoint, above analyst estimates of $1.48 billion
- Free cash flow of $157.9 million, down 48.6% from previous quarter
- Inventory Days Outstanding: 109, up from 100 previous quarter
- Gross Margin (GAAP): 51.8%, up from 50.2% same quarter last year
"We had a strong start to fiscal 2023, delivering record first quarter revenue of $1.45 billion, which grew 8 percent sequentially and 74 percent year over year. Revenue exceeded the midpoint of guidance, driven by higher-than-forecasted results from the datacenter end market. Our new product ramps and growth in content have been instrumental in driving strong revenue growth," 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 strong, averaging 23.6% annually. And as you can see below, last year has been especially strong, with quarterly revenue growing from $832.2 million to $1.44 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).
This was a fantastic quarter for Marvell Technology with 73.8% revenue growth, beating analyst estimates by 1.48%. This marks 9 straight quarters of revenue growth, which means the current upcycle has had a good run, as a typical upcycle tends to be 8-10 quarters.
However, Marvell Technology believes the growth is set to continue, and is guiding for revenue to grow 40.8% YoY next quarter, and Wall St analysts are estimating growth 25.6% over the next twelve months.
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.
This quarter, Marvell Technology’s inventory days came in at 109, 27 days above the five year average, suggesting that that inventory has grown to higher levels than what we used to see in the past.
Key Takeaways from Marvell Technology's Q1 Results
With a market capitalization of $45.9 billion, more than $465 million 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 impressed by the exceptional revenue growth Marvell Technology delivered this quarter. And we were also glad to see the improvement in gross margin. On the other hand, it was less good to see that inventory levels increased. Overall, this quarter's results were still decent, showing the company is staying on target. The company is up 2.4% on the results and currently trades at $58.3 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.