Marvell Technology Q2 Earnings: What to expect?

Marvell Technology Group (NASDAQ: MRVL) stock has surged 47% in 2019 despite the tough macros and ongoing trade war dragging the performance of semiconductor firms. As a result, the chipmaker has guided muted headline numbers last quarter. The company is slated to report its second quarter results on Thursday after the bell.

For the second quarter, the company is expecting revenue of $650 million (up/down 3%) and adjusted earnings of 13 to 17 cents per share. The ban on supplying chips to Chinese giant Huawei is anticipated to dampen the top line metrics in the Q2 period. Analysts are anticipating sales of $652 million and adjusted EPS of 15 cents.

The chipmaker expects the demand to be muted for its storage and networking products in the quarter impacted by tough macros. However, rebound in PC shipments and demand for its high-end processors could act as a tailwind. Marvell also closed the Cavium deal last quarter and it would be accretive to the top line in the second quarter.

5G Ramp Up

Last quarter, CEO Matt Murphy commented that 5G network transition is expected in the latter half of the year and the company is planning to ramp up its 5G related offerings in line with the customer demand. Marvell already has clinched design wins for its Fusion processor for deployment in base stations and expects more deals to come through in the near future.

The custom chips for massive multiple-input, multiple-output (MIMO) processing is also going to witness increased demand from 5G customers. MIMO chips are better than the field-programmable gate arrays (FPGAs) as it consumes less power with the capability to run at higher capacity. Marvell’s custom chips are expected to benefit the 5G clients with reduced costs and improved efficiency.

However, investors need to keep in mind that 5G-related contribution towards top line would kick in only in 2020. With no respite seen in the demand due to multiple headwinds coupled with the trade war, the company is expected to report muted results in the latter half of the year.

If the 5G-related spending from the customers picks up pace in the end of the fiscal year, it is going to grow in the next few years. The sustainable growth in spending is going to result in higher demand for Marvell’s 5G-related products in the foreseeable future, resulting in better headline numbers from the next fiscal year.

Looking Ahead

For the third quarter, the street is anticipating top line of $700 million and adjusted earnings of 21 cents per share. On the fiscal year outlook, non-GAAP EPS is expected at 79 cents on revenue of $2.76 billion.

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