In the previous part of the series, we saw that Marvell Technology’s (MRVL) cost reduction efforts have been reflected in its profit margins. However, sales have been slow due to weakness in the storage market. The company is undergoing a major restructuring to target growth markets, which requires a huge investment in research and development.
Let’s see what the company’s balance sheet says about its financial stability.
As seen in the above graph, Marvell has managed to report positive operating cash flow over all of the past seven quarters except for one. In fiscal 1Q17, the company’s operating cash flow fell to -$658 million as it paid $750 million to settle the Carnegie Mellon University lawsuit. Even Qualcomm (QCOM) reported a fall in its cash flow when it paid a $975 million fine to settle an antitrust claim with China.
In fiscal 2Q17, Marvell earned $59 million in operating cash flow and spent $12.5 million in capital expenditure and $30.7 million in dividend payments. The company didn’t repurchase any shares in fiscal 2Q17, but it plans to do so in the coming quarters.
Cash and debt
At the end of fiscal 2Q17, Marvell’s cash reserves stood at $1.6 billion against zero debt. Marvell is among the few companies that have no debt. Many semiconductor companies have high leverages, as they’ve raised new debt to fund major acquisitions. MRVL’s competitors Texas Instruments (TXN) and Cypress Semiconductor (CY) have net debts of $212 million and $631 million, respectively.
Some companies have temporarily stalled their share buyback programs to channelize their free cash flows toward debt repayment. In a highly leveraged industry, having a zero debt gives Marvell the financial flexibility to take up long-term investments.
Other current assets and liabilities
At the end of fiscal 2Q17, Marvell reduced its inventory by $7.3 million as it completed the restructuring of its mobile platform business. The company’s receivables rose by $25.4 million to $348.7 million, but they were lower than its payables of $213 million. This indicated that the company had sufficient working capital to run its daily operations.
While its sales are falling, Marvell has the financial stability to withstand near-term headwinds. Speaking of a near-term outlook, let’s look at the company’s guidance for fiscal 3Q17 in the next part of the series.