Sometimes even a great company can't keep up with market expectations. Chip designer Marvell Technology (Nasdaq: MRVL) just reported a solid fourth quarter that drew ooohs and aaahs from the analysts attending Marvell's earnings call. But the stock price dropped about 7% in after-hours trading, and it's still down a few percent at market open.
Sales of $843 million was a 64% improvement year over year, while $0.31 of GAAP earnings per share nearly tripled the year-ago period's $0.11 per share. After dipping down into gross margins in the upper 40% range in recent years, Marvell sported 59.7% margins this time -- and promised to stay in that range for the foreseeable future.
And it's not as if Marvell suddenly ran out of fresh business opportunities, either. The company ships silicon for 90% of all OPhone smartphones sold in China by China Mobile (NYSE: CHL). Marvell's newly introduced chips for next-generation e-book readers are close to hitting mass production and retail shelves, and they look like game-changing improvements -- kind of like how the Apple (Nasdaq: AAPL) iPhone redefined the smartphone concept.
CEO Sehat Sutardja spoke of an inflection point in sales coming in the next 18 months -- maybe as early as this year -- as several new Marvell products find their sea legs and head into full production. If anything is holding the company back, it would be the same manufacturing constraints haunting all of its competitors, too. I simply see nothing to dislike about this report.
Maybe Mr. Market's expectations of Marvell ran a bit high coming into this earnings report. The stock has crushed the market and nearly every significant rival over the last 12 months, outperforming all comers including Broadcom (Nasdaq: BRCM), Texas Instruments (NYSE: TXN), and STMicroelectronics (NYSE: STM). After a 168% 12-month gain, shareholders shouldn't be too disappointed by a slight pullback here.
Marvell expects to regain its stride, sticking with 60% gross margins and 20%-25% annual revenue growth over the next three years. E-readers and next-generation storage devices could provide the catalyst Marvell needs in order to hit those lofty targets. This is, after all, a company whose unofficial motto is "Wait for a market to get big enough, then kill whomever is there." Flash-based storage controllers and e-book reader chips might qualify as "big enough" today.
I see more of a buying opportunity than a disappointment here. But what do you think, dear Fool? Spill your guts in the comments below.
