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No Surprises In Marvell Technology's (NASDAQ:MRVL) Q2 Sales Numbers But Stock Drops


Adam Hejl /
2022/08/25 4:18 pm EDT
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Networking chips designer Marvell Technology (NASDAQ: MRVL) reported results in-line with analysts' expectations in Q2 FY2023 quarter, with revenue up 40.9% year on year to $1.51 billion. Guidance for the next quarter missed analyst expectations with revenues guided to $1.56 billion at the midpoint, or 1.2% below analyst estimates. Marvell Technology made a GAAP profit of $4.3 million, improving on its loss of $276.4 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) Q2 FY2023 Highlights:

  • Revenue: $1.51 billion vs analyst estimates of $1.51 billion (small miss)
  • EPS (non-GAAP): $0.57 vs analyst estimates of $0.56 (small beat)
  • Revenue guidance for Q3 2023 is $1.56 billion at the midpoint, below analyst estimates of $1.57 billion
  • Free cash flow of $258.9 million, up 63.9% from previous quarter
  • Inventory Days Outstanding: 114, up from 109 previous quarter
  • Gross Margin (GAAP): 51.8%, up from 34.5% same quarter last year

"In the second quarter of fiscal 2023, we delivered record revenue of $1.52 billion, which grew 41 percent year over year and 5 percent sequentially. This was the 9th straight quarter of sequential revenue growth, and we are guiding for growth to continue in the third quarter, as we expand our leadership in data infrastructure," 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 27.2% annually. And as you can see below, last year has been especially strong, with quarterly revenue growing from $1.07 billion to $1.51 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 reporting results in-line with analysts' estimates this quarter, 40.9% revenue growth for Marvell Technology's was still good. This marks 10 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 28.7% YoY next quarter, and Wall St analysts are estimating growth 21.4% 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.

Marvell Technology Inventory Days Outstanding

This quarter, Marvell Technology’s inventory days came in at 114, 29 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 Q2 Results

With a market capitalization of $44.3 billion, more than $617.1 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 very impressed by the strong improvements in Marvell Technology’s gross margin this quarter. And we were also excited to see the really strong revenue growth. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations and operating margin deteriorated. Overall, this quarter's results could have been better. The company is down 5.02% on the results and currently trades at $52.37 per share.

Marvell Technology may have had a tough quarter, but does that actually create an opportunity to invest 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.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.

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