No Surprises In Marvell Technology's (NASDAQ:MRVL) Q1 Sales Numbers, Next Quarter's Growth Looks Optimistic

Radek Strnad /
2024/05/30 4:33 pm EDT

Networking chips designer Marvell Technology (NASDAQ: MRVL) reported results in line with analysts' expectations in Q1 CY2024, with revenue down 12.2% year on year to $1.16 billion. The company expects next quarter's revenue to be around $1.25 billion, coming in 1% above analysts' estimates. It made a non-GAAP profit of $0.24 per share, down from its profit of $0.31 per share in the same quarter last year.

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Marvell Technology (MRVL) Q1 CY2024 Highlights:

  • Revenue: $1.16 billion vs analyst estimates of $1.16 billion (small miss)
  • EPS (non-GAAP): $0.24 vs analyst expectations of $0.24 (in line)
  • Revenue Guidance for Q2 CY2024 is $1.25 billion at the midpoint, above analyst estimates of $1.24 billion
  • Gross Margin (GAAP): 45.5%, up from 42.2% in the same quarter last year
  • Inventory Days Outstanding: 119, up from 103 in the previous quarter
  • Free Cash Flow of $233 million, down 51% from the previous quarter
  • Market Capitalization: $65.59 billion

"Marvell delivered first quarter fiscal 2025 revenue of $1.161 billion, above the mid-point of guidance, driven by stronger than forecasted demand from AI. Our data center revenue grew 87% year over year, with the start of a ramp in our custom AI programs complementing our substantial base of electro-optics revenue," 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 23.8% annually. But as you can see below, its revenue declined from $1.32 billion in the same quarter last year to $1.16 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

Marvell Technology had a difficult quarter as revenue dropped 12.2% year on year, missing analysts' estimates by 0.1%.

Marvell Technology's revenue inverted from positive to negative growth this quarter, which was unfortunate to see. Looking ahead to the next quarter, the company's management team forecasts a 6.8% year-on-year revenue decline. On the other hand, analysts expect revenue to turn positive over the next 12 months, with average estimates of 9.1% growth.

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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 119, which is 24 days above its five-year average, suggesting that the company's inventory has grown to higher levels than we've seen in the past.

Key Takeaways from Marvell Technology's Q1 Results

We were impressed by Marvell Technology's strong gross margin improvement this quarter. We were also glad next quarter's revenue guidance came in higher than Wall Street's estimates. On the other hand, its operating margin regrettably fell and its inventory levels increased. Overall, the results were mixed. The company is down 1.7% on the results and currently trades at $75.52 per share.

Marvell Technology may have had a tough quarter, but does that actually 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.