Marvell Stock Dips After Earnings Report Warns of Supply Constraints

The company said its revenue grew because of product ramp-ups for its 5G-related chips and the various semiconductors it sells needed for cloud computing. Marvell CEO Matt Murphy said that demand for Marvell’s products continues to rise, but that the company was facing supply constraints.

In an interview with Barron’s late Thursday, Murphy declined to quantify the effect on sales. “We’re just reticent to size that at this point,” Murphy said.

Murphy says that the supply-chain constraints have been an ongoing issue since the coronavirus spread across the globe—a tough 2019 for the entire sector, in part because of U.S.-China trade tensions

Murphy says that the supply-chain constraints have been an ongoing issue since the coronavirus spread across the globe. A tough 2019 for the entire sector, in part because of U.S.-China trade tensions, resulted in a much tighter supply chain. The availability of production capacity remained tight in early 2020, but instead of ramping up to meet rebounding demand, the pandemic forced shutdowns across the world, preventing the usual increase in production. The current supply issues aren’t restricted to Marvell; they have affected dozens of semiconductor companies.

“As we’ve progressed through 2020, the demand picture has only continued to improve,” Murphy said “We started in the hole and suppliers were unable to add the necessary capacity. And now business is very strong.”

To solve the issue, Murphy says communication across the supply chain is crucial. “In the first part of a delivery issue, it is establishing extremely clear and short loop communication links with your key customers,” he said. “And then it becomes paramount to truly understand the underlying demand of a particular product, or a particular market.”

Marvell reported a fiscal third-quarter net loss of $23 million, which amounts to 3 cents a share, compared with a net loss of $157.9 million, or 24 cents a share, a year ago. Revenue rose to $750 million from $727.3 million in the year-ago quarter.

Adjusted for amortization of acquired intangible assets and stock compensation, non-GAAP earnings were 25 cents a share, in line with the consensus estimate. The consensus for revenue was for revenue of $751 million, though Marvell had issued guidance of $750 million plus or minus 2% when it announced that it would acquire Inphi Oct. 29. Murphy says that despite the market’s reaction, Marvell did what it had guided for, and delivered strong outlook for the fiscal fourth quarter.

Marvell said it expects adjusted fourth-quarter earnings of 25 cents to 33 cents a share and sales of $745.8 million to $824.3 million. Analysts modeled fiscal fourth-quarter adjusted earnings of 29 cents a share and sales of $768.3 million. In addition to the coronavirus-related issues, Marvell also said the guidance takes into account U.S. government restrictions on exports to some Chinese customers.

Amid a wave of consolidation in the semiconductor sector, Marvell announced it planned to acquire Inphi (IPHI) for $10 billion in cash and stock. At the time, Murphy told Barron’s that the purpose was to increase the company’s scale in order to have a bigger portfolio of products to sell to existing customers, and help with other aspects of the business such as research and development costs.

Of the analysts that cover Marvell, 21 have Buy ratings, six rate the name a Hold, and one analyst recommends selling shares. The average target price is $46.83, which implies an upside of 2.9% from Thursday’s closing price.

Shares of Marvell have gained 71% this year, while the PHLX Semiconductor index has risen 47%.

Write to Max A. Cherney at max.cherney@barrons.com