Networking chips designer Marvell Technology (NASDAQ: MRVL) beat Wall Street’s revenue expectations in Q3 CY2024, with sales up 6.9% year on year to $1.52 billion. On top of that, next quarter’s revenue guidance ($1.8 billion at the midpoint) was surprisingly good and 9.3% above what analysts were expecting. Its non-GAAP profit of $0.43 per share was 5.5% above analysts’ consensus estimates.
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Marvell Technology (MRVL) Q3 CY2024 Highlights:
- Revenue: $1.52 billion vs analyst estimates of $1.46 billion (6.9% year-on-year growth, 4% beat)
- Adjusted EPS: $0.43 vs analyst estimates of $0.41 (5.5% beat)
- Revenue Guidance for Q4 CY2024 is $1.8 billion at the midpoint, above analyst estimates of $1.65 billion
- Adjusted EPS guidance for Q4 CY2024 is $0.59 at the midpoint, above analyst estimates of $0.52
- Operating Margin: -46.4%, down from -10.3% in the same quarter last year
- Free Cash Flow Margin: 30.4%, down from 31.6% in the same quarter last year
- Inventory Days Outstanding: 67, down from 109 in the previous quarter
- Market Capitalization: $83.9 billion
Company Overview
Moving away from a low margin storage device management chips in one of the biggest semiconductor business model pivots of the past decade, Marvell Technology (NASDAQ: MRVL) is a fabless designer of special purpose data processing and networking chips used by data centers, communications carriers, enterprises, and autos.
Semiconductor Manufacturing
The semiconductor industry is driven by demand for advanced electronic products like smartphones, PCs, servers, and data storage. The need for technologies like artificial intelligence, 5G networks, and smart cars is also creating the next wave of growth for the industry. Keeping up with this dynamism requires new tools that can design, fabricate, and test chips at ever smaller sizes and more complex architectures, creating a dire need for semiconductor capital manufacturing equipment.
Sales Growth
A company’s long-term performance is an indicator of its overall quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for years. Luckily, Marvell Technology’s sales grew at an impressive 14.5% compounded annual growth rate over the last five years. Its growth beat the average semiconductor company and shows its offerings resonate with customers. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions.
Long-term growth is the most important, but short-term results matter for semiconductors because the rapid pace of technological innovation (Moore's Law) could make yesterday's hit product obsolete today. Marvell Technology’s recent history marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 4.1% over the last two years. 
This quarter, Marvell Technology reported year-on-year revenue growth of 6.9%, and its $1.52 billion of revenue exceeded Wall Street’s estimates by 4%. Company management is currently guiding for a 26.2% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 31.9% over the next 12 months, an improvement versus the last two years. This projection is eye-popping and indicates its newer products and services will catalyze better top-line performance.
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Product Demand & Outstanding Inventory
Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business’ capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.
This quarter, Marvell Technology’s DIO came in at 67, which is 29 days below its five-year average. At the moment, these numbers show no indication of an excessive inventory buildup.
Key Takeaways from Marvell Technology’s Q3 Results
We were impressed by Marvell Technology’s strong improvement in inventory levels. We were also glad this quarter's revenue and EPS beat Wall Street's estimates along with its full-year revenue and EPS guidance. Zooming out, we think this was a good quarter with some key areas of upside. The stock traded up 7.9% to $103.59 immediately following the results.
Marvell Technology had an encouraging quarter, but one earnings result doesn’t necessarily make the stock a buy. Let’s see if this is a good investment. The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.
