Networking chips designer Marvell Technology (NASDAQ: MRVL) announced better-than-expected results in Q2 CY2024, with revenue down 5.1% year on year to $1.27 billion. Guidance for next quarter’s revenue was also optimistic at $1.45 billion at the midpoint, 3% above analysts’ estimates. It made a non-GAAP profit of $0.30 per share, down from its profit of $0.33 per share in the same quarter last year.
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Marvell Technology (MRVL) Q2 CY2024 Highlights:
- Revenue: $1.27 billion vs analyst estimates of $1.25 billion (1.5% beat)
- EPS (non-GAAP): $0.30 vs analyst expectations of $0.29 (in line)
- Revenue Guidance for Q3 CY2024 is $1.45 billion at the midpoint, above analyst estimates of $1.41 billion
- EPS (non-GAAP) guidance for Q3 CY2024 is $0.40 at the midpoint, above analyst estimates of $0.38
- Gross Margin (GAAP): 46.2%, up from 38.9% in the same quarter last year
- Inventory Days Outstanding: 109, down from 119 in the previous quarter
- EBITDA Margin: 10.3%, up from -9.7% in the same quarter last year
- Free Cash Flow Margin: 20.3%, up from 0.1% in the same quarter last year
- Market Capitalization: $59.24 billion
"Marvell's second quarter revenue grew 10% sequentially, above the mid-point of guidance driven by strong demand from AI. We saw strong growth from our electro-optics products and our custom AI programs began to ramp," said Matt Murphy, Marvell's Chairman 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.
Semiconductor Manufacturing
The semiconductor industry is driven by demand for advanced electronic products like smartphones, PCs, servers, and data storage. The need for technologies like artificial intelligence, 5G networks, and smart cars is also creating the next wave of growth for the industry. Keeping up with this dynamism requires new tools that can design, fabricate, and test chips at ever smaller sizes and more complex architectures, creating a dire need for semiconductor capital manufacturing equipment.
Sales Growth
Marvell Technology’s revenue growth over the last three years has been solid, averaging 19.4% annually. But as you can see below, its revenue declined from $1.34 billion in the same quarter last year to $1.27 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).
Even though Marvell Technology surpassed analysts’ revenue estimates, this was a slow quarter for the company as its revenue dropped 5.1% year on year. This could mean that the current downcycle is deepening.
Marvell Technology looks like it’s on the cusp of a rebound, as it’s guiding to 2.2% year-on-year revenue growth for the next quarter. Analysts seem to agree as consesus estimates call for 21.7% growth over the next 12 months.
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Product Demand & Outstanding Inventory
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 109, which is 12 days above its five-year average. These numbers suggest that despite the recent decrease, the company’s inventory levels are higher than what we’ve seen in the past.
Key Takeaways from Marvell Technology’s Q2 Results
Revenue beat and gross margin improved this quarter. We were also glad its inventory levels shrunk. Guidance for next quarter was also above expectations for both guidance and EPS. Overall, this was a solid quarter. The stock traded up 4.5% to $73.01 immediately following the results.
Marvell Technology may have had a good quarter, but does that mean you should invest right now? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.
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