No Surprises In Marvell Technology's (NASDAQ:MRVL) Q4 Sales Numbers But Quarterly Guidance Underwhelms

Adam Hejl /
2023/03/02 4:08 pm EST
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Networking chips designer Marvell Technology (NASDAQ: MRVL) reported results in line with analyst expectations in Q4 FY2023 quarter, with revenue up 5.62% year on year to $1.42 billion. However, guidance for the next quarter was less impressive, coming in at $1.3 billion at the midpoint, being 6.19% below analyst estimates. Marvell Technology made a GAAP loss of $15.4 million, down on its profit of $6.17 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) Q4 FY2023 Highlights:

  • Revenue: $1.42 billion vs analyst estimates of $1.41 billion (small beat)
  • EPS (non-GAAP): $0.46 vs analyst expectations of $0.47 (1.8% miss)
  • Revenue guidance for Q1 2024 is $1.3 billion at the midpoint, below analyst estimates of $1.39 billion
  • Free cash flow of $297.5 million, down 19.2% from previous quarter
  • Inventory Days Outstanding: 130, up from 115 previous quarter
  • Gross Margin (GAAP): 47.5%, down from 51.3% same quarter last year

"Marvell delivered record revenue of $5.92 billion in fiscal 2023, growing 33 percent year over year driven by strong growth from cloud, 5G, auto and enterprise networking. In the fourth quarter of fiscal 2023, we achieved revenue of $1.419 billion, growing 6 percent year over year, above the midpoint of guidance, driven by better-than-forecasted results from our datacenter end market," 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 32.1% annually. And as you can see below, last year has been especially strong, with quarterly revenue growing from $1.34 billion to $1.42 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

While Marvell Technology beat analysts' revenue estimates, this was a very slow quarter with just 5.62% revenue growth. This was the third straight quarter of decelerating growth for Marvell Technology, potentially indicating a coming cycle downturn.

Marvell Technology's revenue growth has slowed for the last three quarters and the company expects growth to turn negative next quarter guiding to a 10.2% year on year decline, but analysts think it will recover next year, as consensus NTM revenues are forecast to grow 1.78%.

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 130, 40 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 Q4 Results

Sporting a market capitalization of $38.7 billion, more than $911 million in cash and with positive free cash flow over the last twelve months, we're confident that Marvell Technology has the resources it needs to pursue a high growth business strategy.

Although Marvell beat slightly on revenue this quarter, the quarter was otherwise underwhelming. 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 were not the best we've seen from Marvell Technology. The company is down 4.94% on the results and currently trades at $43.9 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.