Marvell’s stock slips due to weak outlook

Shares of the chipmaker Marvell Technology Group (NASDAQ: MRVL) were down 5% in the extended hours of trading after the company’s Q1 outlook failed to meet estimates. For the fourth quarter, revenue surpassed analysts’ estimates while earnings came in line with the street expectations.

Marvell’s stock has surged 18% this year despite the weak macros which have been hurting the semiconductor industry as investors hope 5G-related deployments would benefit the firm in the next fiscal year.

Tough macros dent Q1 outlook

The chipmaker expects first-quarter revenue to be around $650 million which is much lower than $718.16 million expected by the analysts. Adjusted EPS is forecasted to be between $0.12 and $0.16 compared to street estimates of $0.23. The muted outlook was primarily attributed to muted sales growth from its clients due to lower demand from the clients.

Q4 Performance

Q4 sales improved 21% over the prior year to $744.8 million aided by strong growth from the networking products sales. Networking products revenue jumped 60% over last year. However, on a sequential basis, it dropped 3%. Storage division was hurt by muted demand, resulting in 2% and 22% drop over last year and third quarter respectively.

Adjusted EPS was down 21.8% to $0.25 over last year, but came in line with street consensus. For the fourth quarter, analysts were expecting Marvell to report sales of $740.3 million and adjusted earnings of $0.25 per share.

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Last month, Marvell trimmed down its Q4 revenue outlook. It expects revenue to be between $735 million and $745 million compared to the earlier guidance of $790 million to $830 million. Reduction in revenue guidance was mainly due to weaker demand for its storage products. The company expects the trend to continue into the next quarter as well.

Industry headwinds

Marvell and its peers have been facing the brunt of weak macros, reduction in spending from their clients and a shortage of CPUs headwinds, which has been reflected in their earnings. However, the company is seeing strong demand for its networking products from 4G and 5G deployments. Last month, the company inked a partnership with Samsung to jointly develop processors for 5G and LTE networks.

Investors are pinning their hopes on the 5G network related deployments which would be beneficial to Marvell. Networking products are expected to be in high demand as many of its clients started deploying 5G infrastructure in the next few quarters. The company’s revenue is expected to get a boost in the latter half of the year as the shipments begin to gain traction.

After hitting a 52-week low of $14.34 in the last week of December, the chipmaker had recovered this year and closed at $19.17 at the end of the trading session. But in the after-market session, the stock was trading at $18 levels as the first quarter outlook disappointed investors.

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