Marvell technology (NASDAQ:MRVL) is a semiconductor device manufacturer with a broad portfolio. From around 2007 to early 2020, the stock price tended to hover below $20 per share, reflecting difficulties competing with companies like Qualcomm (QCOM). In 2020, the stock price took off, peaking at $93.85 on December 8, 2021. Since then, it has returned to nearly $73 per share. This article will examine whether around $73 is a good entry point for long-term investors. The basis for this decision will be Marvell’s future device sales projections given demand.
Fiscal 2021 Sales and Profits vs. 2022
Marvell is working on a fiscal year that ends in January. Marvell’s fourth-quarter 2022 revenue was $1.34 billion, up 68% from fourth-quarter 2021 revenue of $798 million. When it comes to earnings, the GAAP and non-GAAP numbers varied widely. Under GAAP, net income was just $6 million, down from $17 million a year earlier. For GAAP EPS, this translates to $0.01 versus $0.02 the previous year. However, on a non-GAAP basis, net income was $429 million, more than double the net income of $201 million in the fourth quarter of fiscal 2021. This resulted in non-GAAP EPS of $0.50 against $0.29 the previous year.
For the full fiscal year 2022, revenue was $4.46 billion, up 50% from $2.97 in fiscal 2021. GAAP net income was a loss of $421 million or $0.53 per share, compared to a loss of $277 million or $0.41 per share a year earlier. Again, the non-GAAP numbers reverse history, with net income for fiscal 2022 of $1.28 billion or $1.57 per share, roughly double net income for the fiscal year. 2021 of $627 million or $0.92 per share.
Although the revenue growth is spectacular, it is good to understand why there have been GAAP losses and non-GAAP profits. In fiscal 2022, the major items eliminated from GAAP to achieve non-GAAP numbers were stock-based compensation and amortization of acquired intangibles, which together with lesser items totaled $449 million. dollars. Different investors have their opinions on equity compensation, which is non-monetary but dilutive, and acquisition costs, which were really a thing of the past. Marvell made two significant acquisitions in fiscal 2022, resulting in high amortization numbers. My main point of comparison is operating cash flow: is it close to the GAAP or non-GAAP figure? In this case, cash provided by operating activities for fiscal year 2022 was $819 million. So I consider, in this particular case, that the non-GAAP numbers are closer to reality and what I think investors should use to judge profitability.
At the end of fiscal 2022, Marvell had a cash (and cash equivalents) balance of $613 million. Long-term debt stood at nearly $5.5 billion. Nothing wrong with that, but that’s several years of annual cash flow at today’s rates. While I would prefer a clean balance sheet, debt is certainly acceptable given cash flow. It’s also worth it if both acquisitions work out in the longer term.
What about the future? The short term future is easier to predict than the long term. At the analyst conference on March 3, 2022, at which the results for the fourth quarter fiscal year 2022 were released, Marvell provided guidance for the first quarter of fiscal year 2023, which ends March 1. may. The center of the guidance range for revenue is $1.425 billion, up 6% sequentially from the fourth quarter of 2022 and up 71% year-on-year to $832 million. Revenue growth should therefore remain rapid.
As for earnings, the center of the GAAP EPS range is $0.01. The center of the non-GAAP EPS range is $0.51. The earnings story remains the same: neglecting non-cash items, earnings remain strong.
Marvell’s Semiconductor Portfolio
In the longer term, Marvell’s evolution will depend on the demand for semiconductor chips and its competition in specific market segments. Management discussed these issues at the recent analyst conference (link in Guidance section, above). One of the recent acquisitions, Inphi, gave Marvell a competitive edge in chips that connect cloud data center networks. The Innovium acquisition added switches for cloud and edge data centers. Clearly, part of the annual growth in non-GAAP revenue and earnings comes from these two acquisitions. They’re also earning design wins, which should propel revenue and profits going forward.
It should be noted that at the end of the financial year, Marvell recorded record bookings. Demand continued to grow faster than supply, and backlogs grew. Marvell was scrambling to get more capacity to meet demand. In addition to strong growth in demand for data center products, Marvell’s cellular carrier infrastructure end market grew 45% year-over-year. This was driven by the rollout of 5G. The enterprise network end market even experienced strong growth, up 64% year-on-year. This market has reached an upward inflection point largely due to the need to continuously connect employees to video.
The automotive and industrial end market is also seeing explosive growth, although at $79 million for the fourth quarter, it is less of a revenue driver. It increased by 134% over one year. Brightlane Ethernet devices for vehicles led the growth. These devices provide the high-speed capabilities needed to connect sensors, including video, to the software needed to run the latest and upcoming generations of cars and trucks.
This all sounds good, but it’s good to keep in mind that rosy scenarios don’t always work. Automobile sales are expected to increase in 2022 and 2023, and semiconductor devices per automobile are also expected to increase. But a severe recession could change that, and supply chain issues that reduce the total volume of vehicles produced would also reduce the number of semiconductor devices purchased from suppliers like Marvell. It’s also hard to see the cloud computing environment slowing down anytime soon, but the macro economy may affect even this sector. Marvell seems to be outmaneuvering its competition lately, but that’s no guarantee of future success.
The future is notoriously harder to predict than the past. It seems to me that the additions of Inphi and Innovium have given Marvell’s technological leadership a boost. I don’t see how the percentage increase in revenue growth between fiscal 2021 and fiscal 2022 can be achieved again in fiscal 2023, but I still expect strong revenue growth. The stock price closed at $73.01 on March 30, 2022, well below its 52-week high of $93.85. Although the forward PE (price to earnings ratio) is still a bit steep at 33, I think that’s fair given the short and long-term growth outlook. This is a buy down situation, although I wouldn’t tell anyone that if the stock price continues to decline in the near term, that would be an even bigger opportunity.