Marvell posts strong Q2 earnings, but weak Q3 guidance


Last week, Marvell Technology Group presented a mixed bag of news to investors. On one hand, the firm beat market analysts’ second-quarter revenue projections. In the period ending July 2019, the firm brought in $657 million in revenue with earnings of $.16 per share. Market watchers predicted that the corporation would make $.15 per share on revenues of $649.8 million.

However, Marvell’s Q2 2019 revenue fell by 1.24 percent from the same period in 2018. Furthermore, the company made a significant revision to its third-quarter revenue guidance. Previously, the firm predicted that it would earn $.21 per share on $690 million in revenue. On August 29, the chipmaker reduced its estimate to an income of $.15 to $.19 per share on revenues of $660 million.

Following its earnings announcement, the corporation’s stock price fell by 5 percent.

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Why Does Marvell Predict a Grim Third Quarter?

Marvell CEO Matt Murphy offered a concise explanation for why his company expects a $30 million shortfall in Q3. “In our third quarter we face a worsening macro environment along with the ongoing impact from the current restrictions on shipments to Huawei,” noted the executive on an earnings call.

The U.S. semiconductor sector has struggled since the Trump administration forbade American companies from selling components to Huawei. Indeed, leaders from Intel, Micron, and Qualcomm were so concerned with losing the Chinese corporation as a customer that they petitioned President Trump for a Commerce Department trade exemption.

While losing $11 billion a year is a problem for the entire component sector, Huawei’s exclusion from the U.S. market has been especially hard on Marvell. The firm forecasts significant losses because it derives 40.4 percent of its revenue from Chinese sales. The firm’s primary client in the Sino region is Huawei. Conversely, Micron only earns 13 percent of its income from sales to Huawei.

As the Trump administration has signaled that it won’t take Huawei off the blacklist until a new trade deal is struck with China, Marvell made the right call. It would have been irresponsible to pretend that the U.S.-China trade war isn’t happening.

A Reason to be Hopeful

Despite having an uninspiring near-term outlook, Marvell did give Wall Street reasons to be optimistic about its long-term future. In the Q2 2019 earnings call, Murphy offered guidance that the company’s storage of business would even out next quarter. His prediction aligns with IC Insights’ July forecast that manufacturers would burn through their stockpiles of memory chips next year.

Murphy also said that the company had made earlier-than-expected production shipments for its 5G products. That point is good news for the corporation for a few reasons. One, it suggests that the predicted trillion-dollar demand for 5G solutions is a prophecy that will come true. Two, it indicates that Marvell is establishing itself as a provider of next-generation chipsets a few months ahead of its competitors.

Finally, the firm’s inroads into the 5G market show that the company was wise to purchase Ethernet transceiver company Aquantia for $452 million in June. With that acquisition, the company has positioned itself to take the lead in the emerging infrastructural Internet of Things sector.

Consequently, Marvell may come to frame its subpar third quarter as a speed bump on the road to unprecedented success.