Marvell Is Re-Focused On Boosting Returns

Marvell Technology Group Ltd. MRVL reported its July quarter results ahead of the guidance, while guided to a marginally lower October quarter, due to potential seasonal declines in console builds.

Morgan Stanley’s Joseph Moore maintains an Equal-Weight rating on the company, while raising the price target from $13 to $14.

Creating A Low Bar

“Guidance was lower, as the company indicated the possibility of softness in consumer after a strong July in that segment — we see this as fairly prudent, given the soft video game console sell through YTD vs. strong builds, but also we do see the company trying to set a pattern of leaving a relatively low bar,” Moore mentioned.

Related Link: Goldman Sachs: Marvell Technology Turnaround Will Be Tough, But M&A Potential Exists

Boosting Value

The analyst expects a 25 percent cut to R&D from the April 2016 quarter to the FY18 run rate, although the cut could be potentially higher. Marvell is also likely to resume share buybacks in the January quarter, although at a modest rate.

Conservative Guidance

“Management guided down for October, but commentary on the call and after made that guidance sound conservative,” Moore pointed out.

While consumer was guided down, management indicated that consumer backlog has risen quarter-on-quarter.

Furthermore, while gross margins were also guided down, management suggested that with positive mix shifts, the high end of the range could be achievable, if not beatable.

At time of writing, Marvell was down 1.74 percent at $12.72.

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