Shares of Marvell Technology
The company has teed up its second-quarter report for the waning hours of this Thursday. Will Marvell be able to show the doubters wrong?
Five Wall Street firms have lowered their third-quarter earnings targets over the last month, landing at a consensus of $0.26 per share. That's down from the $0.38 per share that Marvell reported a year ago. On the top line, sales are expected to slide 5% year over year to $853 million.
These targets sit below the midpoints of management guidance, which work out to $0.28 per share and $865 million, respectively. The company assumes that Chinese growth will lead the way to these results, spearheaded by smartphone radio chips for China Mobile's
The Chinese opportunity is for real, but it's hardly a walk in the park. Marvell faces intense competition for every handset design from local hero Spreadtrum Communications
So there's some fuel for the bearish fires. Bulls will assume that Marvell gains share in the TD-SCDMA market and will also point to the stock looking incredibly cheap right now. Marvell shares are priced for disaster at just 8 times forward earnings and a very reasonable enterprise value-over-EBITDA ratio of 6.5.
So the key to halting the long, painful pricing plunge of Marvell's shares, then, rests in the Chinese market. If Marvell beats sales estimates this time, its growth engines will be full of TD-SCDMA chips. But given the low-cost nature of these products, a big beat there could actually hurt Marvell's profit margins and bottom-line income. It's a high-wire balancing act.
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Fool contributor Anders Bylund holds no position in any of the companies mentioned. Check out Anders' holdings and bio, or follow him on Twitter and Google+. The Motley Fool owns shares of China Mobile and Qualcomm. We Fools don't all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.