Integrated Circuit Developer Marvell Technology (MRVL) is steadily gaining, thanks to the strong demand from the 5G infrastructure and data center end markets for its storage and networking chips. The company’s wireless infrastructure business is also displaying significant signs of improvement.
Moreover, aggressive supply-chain executions are helping it improve its deficiencies across all of its addressable markets. Marvell’s history of overcoming supply shortfalls and delivering strong margins keeps me bullish on the company’s prospects.
Q2 at a Glance
The company recently announced remarkable second-quarter fiscal 2022 (FY22) earnings results, in which it delivered non-GAAP earnings of 34 cents per share, reflecting 62% growth from the year-ago quarter. Moreover, revenues of $1.08 billion improved 48% year-over-year, primarily driven by growth in data center end market as well as the acquisition of Inphi Corporation, which was completed in April.
Marvell’s consistently strong cash flows have helped it return cash through regular quarterly dividend payments and share repurchases. In the second-quarter FY22, the company generated $222 million of cash through operational activities and returned $49 million to shareholders through dividend payments. (See Marvell Dividend Date & History on TipRanks)
Positive Proceedings Reflect Solid Prospects
More than half of Marvell’s data center business now comprises the cloud market. The company expects a sequential increase in the data center business in the third quarter of FY22, also driven by growth across all product lines in the cloud market.
The company also indicated that it is on track to start shipping 400G ZR products in the third quarter. Notably, 400G ZR is used as a standard for the transmission of 400 gigabit Ethernet over data center interlinks.
Moreover, Marvell’s relentless efforts to ramp up its auto Ethernet connectivity business has led to higher revenues from the automotive and industrial sectors over the past few quarters, a trend that is expected to continue into the near term. Marvell’s enterprise networking revenues have witnessed a 23% CAGR over the past 2 years, with most of the contribution coming from standalone Marvell Ethernet switches and PHY products.
Furthermore, Marvell is ahead of its schedule in the process of integrating Inphi’s technology into its operations, as observed from the achievement of an ERP milestone one quarter earlier than planned.
Analyst’s Take
Needham analyst Quinn Bolton’s analysis of Marvell’s business outlook solidifies my faith in the company. He reiterated a Buy rating on the stock and increased the price target to $69 from $67.50.
“Driven by its solid history of execution and its expanding product portfolio targeting high margin, high growth data center and infrastructure markets, we remain positive on Marvell,” he said.
Bolton remains hopeful that the Networking business will benefit from its new design wins in 5G base stations, rise in adoption of ARM-based CPUs in the data center, and new design wins in Ethernet switch and PHY in the enterprise market.
High demand for Inphi’s 5G mid-haul products and ramp in 400G ZR deployments and optical transceivers are expected to boost Marvell’s business with cloud and telecom customers, at least throughout the rest of the calendar year 2021 and the calendar year 2022.
Bolton is also positive about the recovery of Marvell’s storage business. “We also believe Marvell’s Storage business will grow as the market recovers and its DIY SSD controller designs with a tier-one system-level OEM customer and a cloud customer continue to ramp and drive growth,” he observed.
The rest of Wall Street also seems to be optimistic about Marvell, with a Strong Buy consensus based on 19 Buys and 5 Holds. The average Marvell price target of $69.86 implies 13.9% upside potential from current levels.
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