Analysis: MRVL NOK

Marvell Technology Group (MRVL) reported better-than-expected fiscal first-quarter results after the closing bell Monday. Net revenue, including a 10-day contribution from the Inphi acquisition, was $832.279 million (+20% YoY), topping estimates of $807 million. Adjusted earnings of $0.29 per share (+61% YoY) exceeded estimates of $0.27.

It was a beat, even if you viewed Marvell as a stand-alone company, with revenue of $810.496 million and adjusted earnings per share of $0.29.

"We began fiscal 2022 on a strong note, with stand-alone Marvell revenue growing 17% year-over-year for the first quarter. The acquisition of Inphi increases and accelerates our growth opportunity in the data center, Marvell's largest end market by revenue," said president and CEO Matt Murphy in the earnings release.

"Marvell's outlook for strong revenue growth in the second quarter highlights robust demand across all our key end markets. I have never felt stronger about our prospects and believe that we are at the beginning of a multi-year growth cycle."

Despite industry-wide supply constraints that have limited the upside for many in the industry, this was the fourth straight quarter of double-digit YoY revenue growth for Marvell Tech. And even with the current shortage of chips, Murphy said he is "confident" that Marvell has secured enough supply to deliver accelerating YoY revenue growth for standalone Marvell, above what it will deliver in the first half of the year.

Before we get into the results, we want to point out that Marvell said it will discontinue reporting revenue by product group. Moving forward, Marvell will report revenue from the following five end markets: data center, carrier, enterprise networking, auto industrial, and consumer. We welcome this new style of reporting. It will help the market gain a better understanding of Marvell's business.

Digging into the quarter, Marvell's storage business, which is consists of HDD (think traditional hard drives) and SSD (flash memory) controllers, fiber channel adapters, and data center storage solutions, revenue was about $303 million (+17% YoY, -8% QoQ), topping expectations of $283 million.

Driving the better-than-expected growth was stronger demand for SSD controllers. More specifically, Marvell said growth was driven by ramps in their custom DIY SSD controller programs and ongoing growth in cloud demand for nearline drivers. On the downside, the sequential decline in Storage was primarily due to its Fiber channel business, but the weakness here is expected to be short-lived with management guided to up revenues next quarter and flat thereafter.

Storage used to give Marvell problems a few years ago, but management has completely changed the growth rate of the business by increasing focus on data center markets. This strategy has been a huge success. Data center revenues now represent 60% of Marvell's total storage business, up from less than 20% in fiscal 2017.

Meanwhile, revenue from its networking business was roughly $498.250 million (+26.5% YoY, +13.6% QoQ), exceeding expectations of $482 million. Standalone Marvell revenues were $476 million, and revenues grew in all key product lines except for 5G ASIC, though overall 5G revenue continued to grow for the seventh consecutive quarter. More specifically, in 5G, growth was driven by standard and semi-custom product shipments to Samsung and Nokia (NOK) , partially offset by a pause in deployments in China.

In other areas, cloud networking benefited from strong customer demand for their smart DPUs, or data processing units, while automotive grew "rapidly" with their Ethernet product shipping into multiple model year 2021. Recall, management has previously pointed to 2021 as the breakout year for this business.

Despite softness in the Enterprise Networking-end market, Marvell saw a continuation of the double-digit growth trend that had begun last year. Management attributed this success to an expansion of its market position, which is driven by refreshed Ethernet switches and multi-gigabit physical layers, also known as PHYs. And if enterprise spending recovers later this year, and we think it will, management said that would be yet another tailwind.

Other revenue, which comes mainly from printer products and application processors, was about $31 million (-24% YoY, -5% QoQ).

Looking at guidance for the second quarter of fiscal 2022, management expects revenue to be $1.065 billion +/- 3%, a result that is sharply higher than the $841 million consensus estimate. But this may not fully reflect the expected $215 million contribution from the Inphi acquisition. Adjusted gross margins are expected to be approximately 64%, and adjusted operating expenses are expected to be $370 million to $375 million. Finally, adjusted earnings-per-share are expected to be $0.31 +/- $0.03 per share, which is higher than estimates of $0.30.

By business, Marvell expects networking revenues to grow slightly over 70% YoY. Standalone Marvell networking revenues are expected to grow in the high teens YoY and up slightly on a sequential basis, driven by broad growth from multiple products, offset by a pause in China 5G. Inphi is expected to deliver approximately $215 million in revenue and those revenues will be accretive to adjusted earnings. Inphi is expected to contribute growth above Marvell's growth rate, driven by demand for high-speed connectivity inside and between data centers and in the carrier market.

In storage, management expects another strong performance driven by the nearline HDD and data center SSD markets. They are projecting revenue to increase YoY in the mid-teens and double digits sequentially.

Overall, this was a strong quarter for Marvell, no matter how you slice it. Revenues exceeded expectations off continued strength in key secular growing areas like 5G, automotive ethernet, and most importantly the cloud. Also, the company once again demonstrated the operating leverage it had within their business model by beating on earnings and growing significantly YoY, and the Inphi business is off to a fast start with $215 million in revenues expected next quarter.

Lastly, we want to point out how strong of a start Marvell is off to in its fiscal 2022 year. When management first announced the Inphi deal, they also increased their long-term revenue growth target of 12% to 16% to reflect the faster growth rate of this business. Well now, it appears there was some UPOD (under promise, over deliver) involved with that guidance. Management said on the call Monday that its recent results and near-term expectations are currently trending above the high end of this target range, thanks to the combination of its product cycles with sustainable secular growth trends in data infrastructure markets.

We are seeing a very strong reaction to the quarterly beat and great guidance. Shares are trading up about 5% in after-hours trading and looking to reclaim the $50 per level.

Action AlertsPLUS, which Cramer co-manages as a charitable trust, is long MRVL.