Marvell Technology (MRVL) Has Turned the Corner

After reporting better than expected second quarter earnings, Marvell Technology Group (NASDAQ:MRVL) is among the largest gainers, up more than 4.5% midday. The quarter just ended saw the company earn 18 cents, which was better than the street’s expectation of 15 cents per share. Although revenue fell by 24% from a year ago, the top-line came in better than expected as well at $640 million versus $619 million. Sequentially revenue improved by 23%, suggesting perhaps the fiscal first quarter was the low point. The semiconductor-maker topped analysts estimates even though 11 of them have raised earnings expectations within the last month, versus zero analysts become more bearish. Furthermore, the results even topped Marvell’s own call in June to lift 2Q revenue guidance because of increased demand among various end-markets.

Most importantly, Marvell management was more optimistic about the current quarter as they raised guidance significantly. They are now anticipating EPS in the range of 18 to 26 cents, whereas the consensus estimate had MRVL pegged for just 17 cents per share. They are also lifting revenue projections to $680 million to $730 million, much better than the $640 expectations. Perhaps most impressive was the companies greatly improved gross margins, which came in at 55% on a GAAP basis, versus 50.6% in the first quarter, and 51.8% last year. This improved profitably lead to free cash flow of $175.3 million or 6% better than a year ago and 33% better than last quarter.

We are encouraged by recent developments among chip-makers, including Intel (NASDAQ:INTC) which has raised guidance today as well. All the trends are quickly moving in the right direction for Marvell, and after two light quarters for earnings, they are starting to normalize. Today’s earnings report does nothing to dissuade us from our Undervalued rating on MRVL. It is rare for a company to remain undervalued after more than tripling from its low point, but that just goes to show you just how oversold Marvell was in late 2008. We think that Marvell is still quite attractive and may have the potential to rise into the low $20’s, possibly by the end of 2009.

“…Brighter future for chips in the way of boosted guidance coming out of Intel this morning. Boosting its third quarter sales forecast as demand topping its estimates, boosting its sales and margin outlook, certainly one of the big reasons we’re in the green, Marvell another chip maker came out with earnings better than expected. Its outlook very strong. So you’re seeing healthy gains here and also seeing healthy gains in what chips go into, personal computers, PC’s, we have three brokerages that raised their price target on Dell after the number two PC brand in the world reported stronger than expected profits on Thursday. Yesterday of course after the bell, the company reported that cost cutting as well as the ability to keep prices from the sticker price on its personal computers.” — Fox Business Network 8/28/2009

Marvell Technology Has Turned the Corner

About Ockham Research 645 Articles

Ockham Research is an independent equity research provider based in Atlanta, Georgia. Security analysis at Ockham Research is based upon the principle known as Ockham's Razor, named for the 14th- century Franciscan friar, William of Ockham. The principle states that a useful theory should utilize as few elements as possible, because efficiency is valuable. In this spirit, our goal is to make the investing environment as simple and understandable as possible, yet no simpler than is necessary.

We utilize this straightforward approach to value over 5500 securities, with key emphasis given to the study of individual securities' price-to-sales, price-to-cash earnings and other historical valuation ranges. Our long term value investing methodology is powered by the teachings of Ben Graham and it has proven to be very adept at identifying stock prices that are out of line with fundamental factors.

Ockham Research provides its research in a variety of forms and products including our company specific reports, portfolio analytics tools, newsletters, and blog posts. We also offer a white labeling research solution that can give any financial services firm their own research presence without the time and cost associated with building such a robust coverage universe of their own.

Be the first to comment

Leave a Reply

Your email address will not be published.