Marvell Technology stock dwindles on weak outlook despite q2 earnings beat

Marvell Technology Group (NASDAQ: MRVL) stock was down more than 5% in the after-market trading session as the Q3 outlook failed to impress the street. However, second quarter headline numbers surpass estimates. The company’s stock price has increased by 49% in 2019 despite the tough macros faced by Marvell and its peers.

Muted Q3 Outlook

The company expects third quarter revenue of $660 million (up or down 3%) and adjusted earnings of 15 to 19 cents per share. For the third quarter, the street is anticipating top line of $698 million and adjusted earnings of 21 cents per share. The disappointing outlook is due to the tough macros and the chip supply ban to Huawei.

Commenting on the outlook, CEO Matt Murphy said, “In our third quarter, we face a worsening macro environment along with the ongoing impact from the current restrictions on shipments to Huawei, offset by a stabilizing storage business and the earlier than expected first production shipments of our 5G solutions.”

Q2 Performance

As expected, revenue saw a modest decrease of 1% to $657 million while adjusted earnings dropped 43% to 16 cents per share due to change in income tax rates and lower income. However, the headline numbers came ahead of expectations.

Analysts were anticipating sales of $652 million and adjusted EPS of 15 cents for the second quarter. Last quarter, the chipmaker had guided revenue of $650 million (up/down 3%) and adjusted EPS of 13 to 17 cents.

Storage business and networking products revenues decreased 1% and 3% respectively over last year due to lower demand from the customers. The chip supply ban to Huawei is expected to drag its performance in the latter half of the year.

Marvell is pinning its hopes on the ramp-up of 5G technology from its clients. The 5G production ramp up is expected to start in the latter half of the year as the transition from 4G to 5G networks resume from the customers. The company expects demand to increase for its Fusion processors and custom multiple-input, multiple-output (MIMO) chips.

However, 5G-related deployment benefits would be accretive to the top and bottom line either in the Q4 period or in the next fiscal year.

Looking Ahead

For the fiscal year 2020, analysts are expecting non-GAAP EPS of 79 cents on revenue of $2.76 billion.

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