Tuesday, October 03, 2006

Color on warning: Marvell Tech (NASDAQ:MRVL)

Several firms are commenting on Marvell (NASDAQ:MRVL) after the co issued a warning last night:

- Deutsche Bank notes that while MRVL's exposure to the HDD segment does present rev growth
challenges in the near and LT,they continue to expect a reacceleration in growth in F4Q and beyond as it continues to be a broad-based mkt share gainer (PS3, cell phones, printers, etc). The shares are likely to remain range bound in the mid-teens given current headwinds, but they believe LT investors can use this period as an entry point. Maintains Buy.

MRVL also announced that its internal ESO investigation found that actual measurement dates in the past likely differ from the recorded grant dates. While not a large surprise given MRVL failed to file full F2Q financials, this announcement does reiterate additional risk to the share price and mgmt.

Tgt goes to $23 fronm $27 as FY07 and FY08 rev & PF EPS ests are lowered to $2.25b/$0.71 and $2.92b/$0.77 versus prior $2.38b/$0.85 and $3.21b/$0.93.

- Morgan Stanley notes they continue to believe MRVL will trade in a volatile sideways
pattern for 2-3 months until a) the impact of the semiconductor cycle is more completely understood b) investors incorporate the dilution from the Intel acquisition c) investors understand why the Intel acquisition is a solid strategic move. Firm notes they have been anticipating a $17-$20 trading range for MRVL, but given the magnitude of the revision, in the very short run MRVL likely trades below the low end of this range as short-term investors expecting a more rapid recovery sell their stock in disappointment.

They lowered their C06 adjusted EPS to $0.72 from $0.85. Firm's C2007 and C2008 adjusted EPS have been lowered to $0.98 and $1.54, respectively.

Firm notes they continue to be bullish on MRVL over the long-run and the company's strong competitive positioning and favorable secular forces should become a more important stock driver as cyclical challenges fade.

Maintains Overweight and lowers tgt to $33 from $34.

- TWP comments on the warning noting that according to management, HDD customers
accounted for the majority of the $60mn shortfall because of softer-than-expected seasonality and inventory with top customers. In firm's view, this may be because of WDC and notebook PC customers. WDC, its primary desktop PC customer, accounted for 16% of revenue in F2Q07, and its inventory increased 15% q/q in the June quarter. The balance of the shortfall may be the result of share shifts in the notebook PC market, where STX has been aggressive in ramping its mobile HDDs-at the expense of Toshiba (11% customer) and Hitachi (9%).

They are lowering their F3Q07 estimates to $515mn and $0.13 compared to prior estimates of $582mn and $0.19. As a result, FY07 estimates go from $2.28bn and $0.82 to $2.19bn and $0.74. Firm is maintaining FY08 estimates of $2.63bn and $0.92. In firm's view, the excess inventory situation may be short term in nature and we expect a resumption of growth in

MRVL shares trade at 25.5x firm's CY07 EPS estimate and 5.4x TEV CY07 sales estimate. Given MRVL's consistent growth outlook and good operational fundamentals, they believe that the shares appear attractively valued and reiterate Outperform rating on MRVL shares.

Notablecalls: MRVL traded down 18% in after mkt. That feels somewhat excessive as the warning was somewhat expected. Also, MRVL is a notorious bouncer. Think the stock has a fair chance of ending the say with a 10% loss.


dcxavier said...

Analysts really failed to do their job with MRVL. HDD components are approximately 60% of MRVL sales, so a 10% company Q3 shortfall translates into a 15-20% hit in their hard drive business. That's big! Yet none of the analysts saw it coming. So why should we believe what they say today?

notablecalls said...

Some did, some didn't.

dcxavier said...

Lots were making vague statements that the PC and hard drive biz were slow, but who was predicting MRVL sales down this quarter, let alone down 10%?