Marvell shares fall as persistent supply constraints dampen data center forecast

Shares of Marvell Technology Inc. fell in Thursday’s extended session after the chipmaker forecast third-quarter data center sales that were well below Wall Street expectations due to supply constraints not expected to ease until the fourth quarter.

Marvell MRVL,
Shares fell 5% after hours, after rising 5.5% in the regular session to close at $55.09. Shares are down 37% year-to-date, compared with a 25% drop in the PHLX Semiconductor Index SOX,
and down 12% from the S&P 500 SPX,

Marvell forecast adjusted earnings of 56 cents to 62 cents a share on revenue of $1.51 billion to $1.61 billion for the third quarter. Analysts had estimated earnings of 61 cents a share on revenue of $1.58 billion for the third quarter.

“We continue to see healthy demand for our products, with the exception of consumer HDD, and our overall demand is outpacing supply,” Matt Murphy, Marvell’s chief executive, told analysts on a conference call. Murphy said he expects sequential revenue growth to accelerate in the fourth quarter as supply constraints begin to ease.

“In the data center, year over year, we expect revenue growth of over 20%, driven by the cloud end market,” Murphy said on the call. “Due to the complex nature of products for this end market, we expect supply challenges in the third quarter to impact our ability to fully meet demand on a sequential basis.”

This is right on the heels of chip giant Nvidia Corp. NVDA,
forecasting late Wednesday that third-quarter sales would likely fall about $1 billion short of Wall Street expectations. Nvidia also took a $1.22 billion inventory charge ahead of the release of its next-generation ‘Lovelace’ chip architecture, and analysts speculated whether that was the bottom line or whether data center sales would weaken as well.

“We expect our data center revenue in the fourth quarter to grow on a sequential basis, anticipating improved supply and new cloud product ramps,” Murphy said. The company also forecast data center sales would decline sequentially in the mid-single digits on a percentage basis from second-quarter sales of $643.4 million, or a 48% gain from a year ago. The data center has accounted for more than 40% of Marvell’s revenue over the past five quarters.

Analysts expect $695.2 million in data centers, or 8% growth.

Marvell expects third-quarter cloud sales to be flat sequentially and premises revenue to decline. Marvell reported that enterprise infrastructure sales rose 45% to $285.2 million over the year-ago period and that enterprise network sales rose 53% to $340.3 million. Analysts expected a 2% decline to $279.3 million in enterprise infrastructure sales and a 2% decline to $334.1 million in enterprise networking sales.

“We increased our inventory by $78 million to better address demand from our customers in a very tight supply chain environment and to ensure a smooth ramp for a number of new design gains that we expect to begin shipping in the coming quarters. Jean Hu, Marvell’s chief financial officer, told analysts.

“Most of that growth was in raw materials, and in the longer term, as the supply chain starts to improve, we expect [days of inventory] will start to decline,” Hu told analysts.

“In line with our strategy to secure long-term supply, we have increased our long-term purchase commitment for the ability to support the number of high-volume design wins,” Hu said.

Marvell reported second-quarter net income of $4.3 million, or a penny per share, compared with a loss of $276.4 million, or 34 cents per share, in the prior period. Adjusted earnings, which exclude stock-based compensation expense and other items, were 57 cents per share, compared with 34 cents per share in the year-ago period.

Revenue rose to $1.52 billion from $1.08 billion in the prior quarter.

Analysts polled by FactSet had forecast 56 cents per share on revenue of $1.52 billion, based on the company’s forecast of 53 cents to 59 cents per share on revenue of $1.47 billion to $1.56 billion.

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