Marvell Technology (MRVL)

Networking chips designer Marvell Technology (NASDAQ: MRVL) announced better-than-expected revenue in Q4 CY2024, with sales up 27.4% year on year to $1.82 billion. The company expects next quarter’s revenue to be around $1.88 billion, close to analysts’ estimates. Its non-GAAP profit of $0.60 per share was in line with analysts’ consensus estimates.

Company Overview

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.

Marvell’s peers and competitors include AMD (NASDAQ:AMD), Broadcom (NASDAQ:AVGO), Intel (NASDAQ:INTC), and Nvidia (NASDAQ: NDVA).

Longer manufacturing duration allows analog chip makers to generate greater efficiencies, leading to structurally higher gross margins than their fabless digital peers. The downside of vertical integration is that cyclicality can be more pronounced for analog chipmakers, as capacity utilization upsides work in reverse during down periods. Read More. The semiconductor industry is broadly divided into analog and digital semiconductors. Digital chips are what most people think of as the brains of almost every electronic device. Their primary purpose is to either store (memory chips) or process (CPUs/GPUs) data. By comparison, analog chips regulate real world signals, such as temperature, speed, sound, or electrical current, converting them into a stream of digital data that can be processed by digital semiconductors. Analog semiconductors are also used to manage power in any electronic device; they convert, store and distribute the electrical energy that comes from a battery or wall plug. Analog chips are found everywhere from household appliances like refrigerators or washing machines, to smartphones, cars and factory production lines.

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Marvell Technology grew its sales at an excellent 16.4% compounded annual growth rate. Its growth beat the average semiconductor company and shows its offerings resonate with customers. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions.

Long-term growth is the most important, but short-term results matter for semiconductors because the rapid pace of technological innovation (Moore's Law) could make yesterday's hit product obsolete today. Marvell Technology’s recent history marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 1.3% over the last two years.

This quarter, Marvell Technology reported robust year-on-year revenue growth of 27.4%, and its $1.82 billion of revenue topped Wall Street estimates by 1.2%. Company management is currently guiding for a 61.5% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 42.8% over the next 12 months, an improvement versus the last two years. This projection is eye-popping and indicates its newer products and services will fuel better top-line performance.

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.

This quarter, Marvell Technology’s DIO came in at 104, which is 5 days above its five-year average, suggesting that the company’s inventory has grown to higher levels than we’ve seen in the past.

Gross profit margin is a key metric to track because it shows how much money a semiconductor company gets to keep after paying for its raw materials, manufacturing, and other input costs.

Marvell Technology’s gross margin is slightly below the average semiconductor company, indicating its products aren’t as mission-critical as its competitors. As you can see below, it averaged a 44.6% gross margin over the last two years. Said differently, Marvell Technology had to pay a chunky $55.36 to its suppliers for every $100 in revenue.

Marvell Technology produced a 50.5% gross profit margin in Q4, marking a 3.9 percentage point increase from 46.6% in the same quarter last year. Marvell Technology’s full-year margin has also been trending up over the past 12 months, increasing by 5.8 percentage points. If this move continues, it could suggest a less competitive environment where the company has better pricing power and leverage from its growing sales on the fixed portion of its cost of goods sold (such as manufacturing expenses).

Although Marvell Technology was profitable this quarter from an operational perspective, it’s generally struggled over a longer time period. Its expensive cost structure has contributed to an average operating margin of negative 11.4% over the last two years. Unprofitable semiconductor companies require extra attention because they could get caught swimming naked when the tide goes out. It’s hard to trust that the business can endure a full cycle.

Analyzing the trend in its profitability, Marvell Technology’s operating margin decreased by 3.8 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. . Marvell Technology’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

In Q4, Marvell Technology generated an operating profit margin of 12.9%, up 15.3 percentage points year on year. The increase was solid, and since its operating margin rose more than its gross margin, we can infer it was recently more efficient with expenses such as marketing, R&D, and administrative overhead.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Marvell Technology’s EPS grew at a solid 18.7% compounded annual growth rate over the last five years, higher than its 16.4% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into the nuances of Marvell Technology’s earnings can give us a better understanding of its performance. Marvell Technology’s operating margin has expanded by 28.9 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q4, Marvell Technology reported EPS at $0.60, up from $0.46 in the same quarter last year. This print beat analysts’ estimates by 1.6%. Over the next 12 months, Wall Street expects Marvell Technology’s full-year EPS of $1.57 to grow 77.6%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Marvell Technology has shown robust cash profitability, and if it can maintain this level of cash generation, will be in a fine position to ride out cyclical downturns while investing in plenty of new products and returning capital to investors. The company’s free cash flow margin averaged 21.6% over the last two years, quite impressive for a semiconductor business.

Taking a step back, we can see that Marvell Technology’s margin was unchanged over the last five years, showing its long-term free cash flow profile is stable.

Marvell Technology’s free cash flow clocked in at $444.1 million in Q4, equivalent to a 24.4% margin. The company’s cash profitability regressed as it was 8.9 percentage points lower than in the same quarter last year, but it’s still above its two-year average. We wouldn’t read too much into this quarter’s decline because capital expenditures can be seasonal and companies often stockpile inventory in anticipation of higher demand, leading to short-term swings. Long-term trends trump temporary fluctuations.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Marvell Technology’s five-year average ROIC was negative 2.6%, meaning management lost money while trying to expand the business. Its returns were among the worst in the semiconductor sector.

Debt is a tool that can boost company returns but presents risks if used irresponsibly. As long-term investors, we aim to avoid companies taking excessive advantage of this instrument because it could lead to insolvency.

Marvell Technology’s $4.06 billion of debt exceeds the $948.3 million of cash on its balance sheet. Furthermore, its 6× net-debt-to-EBITDA ratio (based on its EBITDA of $537.1 million over the last 12 months) shows the company is overleveraged.

At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. Marvell Technology could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.

We hope Marvell Technology can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.

It was encouraging to see Marvell Technology beat analysts’ EPS expectations this quarter. We were also happy its revenue narrowly outperformed Wall Street’s estimates. On the other hand, its inventory levels materially increased and its EBITDA missed. Overall, this was a weaker quarter. The stock traded down 13.3% to $78.23 immediately after reporting.

Updated: May 16, 2025 at 10:19 PM EDT

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

Marvell Technology isn’t a terrible business, but it doesn’t pass our quality test. Although its revenue growth was impressive over the last five years and is expected to accelerate over the next 12 months, its relatively low ROIC suggests management has struggled to find compelling investment opportunities. And while the company’s strong free cash flow generation allows it to invest in growth initiatives while maintaining an ample cushion, the downside is its operating margins reveal poor profitability compared to other semiconductor companies.

Marvell Technology’s P/E ratio based on the next 12 months is 22.9x. This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're fairly confident there are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $98.30 on the company (compared to the current share price of $62.16).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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