Shares of Marvell Technology (MRVL 3.71%) have been heading lower following the release of the company's fiscal 2023 third-quarter earnings report (for the three months ending Oct. 29, 2022) on Dec. 1. The chipmaker failed to offer solid guidance, leading investors to press the panic button.
NASDAQ: MRVL
Key Data Points
Marvell reported impressive year-over-year growth last quarter, but is contending with soft demand in certain areas. More specifically, Marvell's storage customers are reducing inventories, reflecting the weak demand environment. Savvy investors, however, may want to take a closer look at this semiconductor stock, as its diversified business should allow it to tide over the near-term headwinds and soar higher in the new year and beyond.
Marvell Technology is about to hit a speed bump
Marvell reported fiscal Q3 revenue of about $1.54 billion, an increase of 27% over the prior-year period. The company's adjusted net income jumped 32% year over year to $0.57 per share. On the latest earnings conference call, Marvell management attributed the healthy growth to cloud computing, 5G infrastructure, and automotive businesses.
But the chipmaker's outlook was the fly in the ointment. Marvell guided for adjusted earnings of $0.46 per share and revenue of about $1.4 billion in the fiscal fourth quarter. These numbers point toward a slowdown. In comparison, Marvell reported $1.34 billion in revenue in the year-ago period. The company's earnings are on track to contract from $0.50 per share in the same quarter last year.
Explaining the reason why Marvell is about to lose its wheels, Marvell CEO Matt Murphy said:
Late in the quarter, customers started requesting to push out shipments and reschedule orders to manage their inventory in a changing demand environment. In the third quarter, these inventory reductions started to manifest, and we are expecting an even greater impact in the fourth quarter. The largest impact is from our storage customers and has been widely communicated by that set of OEMs.
It is not surprising to see that Marvell's storage business is under stress right now. The sharp decline in sales of personal computers this year has hurt sales of storage chips such as hard-disk drives and solid-state drives.
The bad news is that Marvell is witnessing weak demand for its storage controllers in the data center segment as well. The weakness in data center storage can be attributed to the opening up of workplaces and educational institutions after pandemic restrictions, which has reduced the need for rapid data center expansion.
However, analysts are anticipating healthy double-digit earnings growth from Marvell in the long run. Consensus estimates suggest that the chipmaker's bottom line could clock annual growth of nearly 19% over the next five years.
A closer look at the company's growth opportunities tells us why Wall Street is upbeat about its prospects in the long run.
Don't miss these long-term catalysts
Marvell Technology sells chips that are used in multiple fast-growing niches such as cloud computing, 5G infrastructure, and automotive. The company has been gaining traction and building up its revenue pipeline for the long run.
For instance, Marvell and Nokia recently strengthened their collaboration in 5G infrastructure. Nokia will be using Marvell's data processing units in its 5G chipsets to deploy faster networks. Given that Nokia is a key player in the global base station market, with a share of 21.5%, and it has been winning a large chunk of 5G contracts in emerging markets such as India, Marvell's stronger relationship with the Finnish company bodes well for the long run.
Meanwhile, Vodafone and Samsung are also partnering with Marvell and using the latter's Octeon chipset in the deployment of 5G open radio access networks (RAN) across Europe. It is worth noting that the open RAN market is expected to see an impressive 42% annual growth rate through 2030, which means that Marvell is on track to take advantage of a solid growth opportunity.
Moreover, Marvell's design win momentum in the cloud computing space hasn't been diluted by the near-term slowdown in demand. The company scored a "significant design at a Tier 1 hyperscaler projected to drive a substantial amount of revenue in aggregate over the program's lifetime." It wouldn't be surprising to see Marvell score further design wins in the hyperscale cloud computing market, as this space is anticipated to post nearly 30% annual growth through 2026.
Coming to the automotive business, Marvell witnessed healthy growth in this segment last quarter. The company's revenue from the automotive and industrial segment increased 26% year over year last quarter to $84 million thanks to the growing adoption of automotive ethernet technology. While this segment is still a small part of Marvell's top line, the company points out that it has "been accumulating platform design wins across a broad spectrum of auto OEMs. And we have generated a substantial pipeline of lifetime revenue that will benefit us over many years."
Not surprisingly, Marvell's automotive and industrial revenue is estimated to increase nearly 30% year over year in the current quarter. The company's automotive revenue should head higher in the long run as it is operating in fast-growing areas such as automotive ethernet, a niche that's expected to enjoy annual growth of nearly 21% through 2026.
All these potential growth drivers suggest that opportunistic investors should consider grabbing this semiconductor stock right away, as it is trading at a relatively attractive 6.2 times sales, compared to last year's sales multiple of almost 17. Also, the forward earnings multiple of 18 indicates that Marvell stock is cheaper than the Nasdaq-100 index, which sports a forward price-to-earnings ratio of 23.
In all, Marvell Technology has several catalysts that should help it regain its mojo in 2023 and beyond, and that could send the stock price soaring.
