Marvell's warning of a soft third quarter is just a hiccup and worth waiting out

Published Thu, Aug 25 20227:17 PM EDT

Marvell Technology (MRVL) reported a solid quarter Thursday after the closing bell, but a small hiccup in its supply chain caused the company to guide data center revenues down on a sequential basis for the current quarter, resulting in an outlook that was below the Street's expectations. On the bright side, management sees its supply chain pressures easing in the fourth quarter. When combined with a healthy demand outlook and new product ramps, the company sees fourth-quarter revenue growth accelerating from the third quarter, and full-year revenue growth tracking above management's initial plan. Revenue rose 41% to $1.517 billion for the second quarter of its fiscal 2023, roughly in line with estimates of $1.52 billion, according to Refinitiv. Adjusted earnings per share of $0.57 beat estimates of $0.56, according to Refinitiv. Adjusted gross margin of 65.0% and that was slightly below estimates of 65.2%. Bottom line Due to the weakness in consumer electronics right now (think PCs, smartphones, gaming) and the industry strength in cloud, 5G, and auto, we thought Marvell would be one of the best positioned semiconductor companies for the current environment. After all, the semiconductor company has strong exposure to data infrastructure end markets and, among its peers, the least exposure to consumer end markets. Although the demand outlook in Marvell's secular growing end markets remains healthy thanks to positive industry trends and company specific design wins and product ramps, it appears that the company hit a supply related speed bump for the third quarter, causing them to offer up guidance that was slightly below expectations. It's a disappointment to see for a company that has so effectively managed its supply chain through the worst of the chip shortage. But we do not want to be too negative because the company's overall demand (outside of consumer) continues to outpace supply. With those supply pressures expected to ease in the fourth quarter and hopefully through next year, and demand remaining strong, this lower-than-anticipated outlook is more of a short-term setback and not a long-term concern. The semis are a tricky and volatile group right now and each one is experiencing its own strengths and challenges. But what we come back to with Marvell is its product leadership in some of the most attractively growing end markets, as well as its operating leverage, which exp