Marvell's New Management: What's in Store for Investors?

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Part 7
Marvell's New Management: What's in Store for Investors? PART 7 OF 12

What Impact Could Restructuring Have on Marvell’s Revenue?

Marvell’s earnings raise hope among investors

As a company streamlines its business, its revenues tend to take a slight hit, but its profits generally improve. Investors are mainly interested in profits, and so such a company’s stock tends to rise in this scenario, despite declines in revenue.

Since fiscal 4Q15, Marvell Technology Group’s (MRVL) revenue has been on a downward trend due to several internal and external issues. Declining revenues and earnings, in fact, got the company’s founders, Sehat Sutardja and Weili Dai, ousted in fiscal 1Q17.

What Impact Could Restructuring Have on Marvell’s Revenue?

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Mathew Murphy took the control as chief executive officer in fiscal 2Q17, and the company reported its first revenue growth in six quarters. In fiscal 3Q17, the company’s revenue rose 4% sequentially to $654.4 million, driven by seasonal demand from the Storage segment and the inclusion of $60 million of storage shipments deferred from fiscal 2Q17. But this growth was partially offset by declines in the Networking and Mobile and Wireless segments.

During the same quarter, rival Cypress Semiconductor (CY) reported 16% sequential growth driven by the addition of Broadcom’s (AVGO) wireless IoT (Internet of Things) business. Excluding the acquisition, Cypress’ revenue fell 1% sequentially. On the other hand, Broadcom’s revenue rose 7% sequentially, driven by strong growth from Apple’s (AAPL) orders. If we normalize the earnings of rivals, Marvell’s revenue was in line with the industry.

Marvell’s revenue guidance

For fiscal 4Q17, Marvell expects to report revenue of $565 million, which is below the analyst estimates of ~$594.6 million. It’s important to note that the company’s fiscal 4Q17 guidance excludes the $100 million in revenue from businesses that it will discontinue during the quarter. It’s not clear whether these analysts’ estimates include or exclude revenue from these businesses, however, because the company has not disclosed which businesses it would discontinue.

Apart from discontinuations, Marvell will likely witness a seasonal slowdown in its all three segments of Storage, Networking, and Mobile and Wireless, which will further reduce revenues. Notably, Cypress also expects to report flat revenues in the December 2016 quarter.

You can invest in the above communications semiconductor stocks through the VanEck Vectors Semiconductor ETF (SMH). SMH has holdings in 26 semiconductor stocks, including ~1.5% in MRVL and ~5.7% in AVGO.

Next, we’ll look at Marvell’s profit—the key factor driving optimism among investors and analysts.


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