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What’s Driving Marvell’s Revenue Growth in Fiscal 2018?

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Marvell’s turnaround 

So far in this series, we’ve seen that the semiconductor industry is consolidating to expand in the emerging IoT (Internet-of-Things) and cloud computing markets. The latest addition to the consolidation is the Marvell (MRVL)-Cavium (CAVM) deal. The acquisition would be accretive to Marvell’s earnings and boost its annual revenue by 40%. Marvell is also undergoing restructuring efforts by offloading non-core assets, focusing its expenses on core businesses, and cutting costs.

Marvell’s revenue

Marvell earns revenue by offering semiconductor solutions for storage, networking, and wireless connectivity. Fiscal Q2 and Q3 are seasonally strong quarters for the company, as it witnesses increasing demand for its storage and connectivity products.

In fiscal 3Q18, which ended in October 2017, Marvell’s revenue rose 2% sequentially to $616 million, beating analysts’ estimate of $613.6 million. The growth of the networking and connectivity segments was partially offset by slow growth in the storage segment.

Marvell’s revenue growth underperforms peers

Marvell’s revenue growth was lower than its peers’. Both Broadcom (AVGO) and Intel’s (INTC) revenue rose 9% sequentially during the quarter because Marvell’s large exposure to the declining HDD (hard disk drive) market is mitigating growth in the SSD (solid-state drive), networking, and connectivity markets, stated Summit Redstone analyst Kinngai Chan.

So Marvell is increasing its exposure to growth markets such as SSD to boost revenue. Susquehanna analyst Christopher Rolland stated that the laptop SSD attach rates reached an all-time high of around 56% in 3Q17. Susquehanna’s latest quarterly report on the semiconductor industry showed that Marvell gained a 2% share in the SSD market in calendar 3Q17.

On a YoY (year-over-year) basis, Marvell’s revenue fell 1.2% as the company sold off its non-core home networking technology to MaxLinear (MXL) in April 2017.

Revenue guidance

In fiscal 4Q18, seasonal demand could fade, which would result in a sequential decline in revenue. Marvell expects its fiscal 4Q18 revenue to fall 1% sequentially to $610 million at the midpoint—higher than the consensus estimate of $590.2 million. The $610 million revenue represents 7.7% growth on a YoY basis.

For full-year fiscal 2018, Marvell expects its revenue to rise 4.5% YoY to $2.4 billion. The Cavium acquisition, which is expected to be completed in mid-fiscal 2019, would increase the combined company’s annual revenue to $3.4 billion and also accelerate its growth by opening new market opportunities such as cloud computing. In the long term, the combined company is expected to grow at an average annual rate of 6%–8%.

Marvell could also grow organically by selling its 4G LTE (long-term evolution) products and a wide range of new IoT (Internet-of-Things) solutions. Next, we’ll look at the performance of Marvell’s business segments.

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