Marvell Technology Group's (MRVL +5.40%) fourth-quarter fiscal 2018 report on March 8 is going to be closely watched by investors, who have been betting on a Marvell turnaround for over two years now.
MRVL data by YCharts. TTM = trailing 12 months.
Here's what to look for.
Image Source: Marvell Technology Group.
Growth will get back on track
Marvell is expected to have earned $0.31 per share on revenue of $611 million during the fourth quarter, which compares favorably to the previous year's earnings of $0.22 per share and revenue of $571.4 million. The consensus estimates are in line with the midpoint of the company's own guidance.
If Marvell hits the midpoint of its top-line guidance, its revenue will increase close to 7% year over year. By comparison, the company's top line dropped 5% year over year during the same period last year. A turnaround in Marvell's fortunes will be driven by improving traction in the storage and networking businesses, which have impressive catalysts.
For instance, the growing demand for solid-state drives (SSDs) is crucial in driving the storage business. The company's storage-related revenue increased 10% during the first nine months of the fiscal year thanks to a huge ramp-up in SSD demand. Marvell management estimates that SSDs could contribute as much as 30% of its storage sales this year -- good from a long-term perspective given the substantial growth available here.
Meanwhile, Marvell's recently launched automotive connectivity products are positively impacting its business. During the third quarter, the company's connectivity revenue had increased an impressive 19% year over year. Automotive could have played a key role in this jump as the company was already in negotiations with potential customers to deploy its connectivity products.
So, Marvell looks all set to release a strong quarterly report and a sunny outlook.
Looking at the long run
I have already mentioned that automotive and SSDs are the two key catalysts boosting Marvell's top line, and both these areas should gain more traction in the coming quarters. For instance, the chipmaker is engaged with leading Tier 1 automotive component suppliers to build next-generation high-speed networks to enable secure connectivity in self-driving cars.
Though the initial revenue ramp-up from the automotive segment is going to be modest, according to management, it should prove to be a big growth driver in the long run. Market researcher TechNavio estimates that the global automotive Ethernet market will expand at an annual pace of 42% for the next four years. Marvell is going after this opportunity with a secure automotive gigabit Ethernet switch that it claims to be an industry first.
Meanwhile, the impending acquisition of Cavium, expected to close soon, will increase Marvell's addressable market by $8 billion by giving it access to the data-center switching space. So the growth of the chipmaker's networking and connectivity business segments, which together account for 41% of total revenue, looks secure for the long run.
The storage business will be driven by the growing proliferation of SSDs. Marvell makes storage controllers that are used in solid-state drives, and it supplies these chips to both Western Digital and Seagate. The SSD market is expected to grow 14.7% annually over the next five years, driven by its growing adoption in cloud computing and data centers. Marvell looks well placed to tap this growth thanks to its relationship with Western Digital and Seagate.
The bottom line is that Marvell Technology is going after fast-growing areas to drive growth. Analysts believe that the catalysts discussed above could boost its earnings at an annual rate of over 22% for the next five years, and a strong set of results this week should confirm that it is capable of achieving the same.
