Marvell (MRVL) Heads Lower Following Q3 Miss And Guide Down; Demand Likely To Soften In Q4
2:29 pm Friday, December 02nd, 2022
Marvell (MRVL) is under pressure after the chip company missed slightly on both EPS and revenue for Q3 (Oct). However, the Q4 (Jan) guidance was even more troubling with EPS and revs both well below analyst expectations.
Revenue growth was driven by its cloud, 5G and auto business, as well as share/content gains in enterprise networking. Early in Q3, MRVL was still dealing with supply disruptions, but late in the quarter, customers started requesting to push out shipments and reschedule orders to manage their inventory in a changing demand environment. Customers are focused on reducing their current inventory rather than buying new chips. This dynamic started in Q3 but should have an even greater impact in Q4.
Unfortunately, Data Center growth is decelerating as MRVL says customers have started adjusting their inventory to address the changing demand picture. As a result, Data Center revenue in Q4 is expected to decline yr/yr in the mid to high-teens and in the mid-20% range sequentially with storage being impacted the most. MRVL is projecting a very large reduction in shipments of HDD controllers and preamps. Data Center is a key vertical, so the big sequential drop is spooking investors today.
On a more positive note, its Carrier Infrastructure segment grew revenue by 26% yr/yr to $271 mln, although that is down 5% sequentially. The vast majority of growth is being driven by its wireless business which is benefitting from 5G adoption. Another bright spot was Enterprise Networking, which grew 52% yr/yr and 10% sequentially. However, as the quarter progressed, its Chinese customers started to turn cautious, which should lead to a low single-digit sequential decline in Q4.
Overall, this was a rough quarter for Marvell, especially the Q4 guidance. Given the pretty dire comments made about Q4 especially relating to its Data Center vertical, we were expecting an even bigger drop. However, we think a lot of negativity is priced in already. The stock has been trending lower over the past year. Nevertheless, we would be cautious about bottom fishing down here until we get a clearer picture on next fiscal year.
