Earnings Preview: Marvell Technology

Marvell Technology (MRVL) is expected to report Q3 earnings after the market close on Thursday, November 17, with a conference call scheduled for 4:45 pm ET.

Guidance

The consensus estimate is 39c for EPS and $938.96M for revenue, according to First Call. The company provided Q3 revenue guidance of $940M-$980M non-GAAP EPS of 39c-43c, and gross margin of around 57%. The chip maker's shares have been in a slump over the last couple of trading sessions, as analysts have predicted that the flooding in Thailand will sharply impact the company's Q3 results. Specifically, the flooding's negative effects on HDD production and growing competitive pressures in the mobile device market are expected to hurt Marvell.

Analyst Views

Needham anticipates that HDD production will be constrained for several quarters and that production at Marvell's largest customer, Western Digital (WDC), will be particularly hard hit. However, Needham encourages investors to look past the impact of the flood and focus on Marvell's long-term earnings power. The firm predicts that the overall impact on Marvell's Q3 revenue will be modest, but that the impact to the company's revenue during Q4 and the first quarter of 2013 will be signifcant. Since about 60% of Western Digital's HDD production is in Thailand, Needham believes it could take up to a year for Western Digital's production to recover to Q3 levels. The firm believes that TD-SCDMA will likely be an area of strength in Marvell's cellular and wireless business, due to accelerating TD-SCMA market growth and Marvell's strong market share in the smartphone segment. With Marvell's non-GAAP EPS poised to recover to an annualized level of approximately $1.60 in the second half of 2012 and with about $4 of net cash per share, Needham sees significant value in Marvell's shares and recommends buying the stock on weakness. Consensus for FQ4/FY13 is: 27c/$1.38 on $823.47M/$3.73B in revenue.