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Post: Earnings Results: Marvell stock drops as persistent supply constraints weaken data-center forecast

Marvell Technology Inc. shares fell in the extended session Thursday after the chip maker forecast data-center sales for the third quarter that fell well short of Wall Street’s expectations due to supply constraints that aren’t expected to ease until the fourth quarter.

Marvell 
MRVL,
+5.46%

shares fell 5% after hours, following a 5.5% climb in the regular session to close at $55.09. Shares are down 37% year to date, compared with a 25% fall by the PHLX Semiconductor Index 
SOX,
+3.66%

and a 12% decline by the S&P 500 index 
SPX,
+1.41%
.

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 data center, year-over-year, we are expecting revenue growth of over 20%, driven by our 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 the demand on a sequential basis.”

That’s right on the heels of chip giant Nvidia Corp.
NVDA,
+4.01%

forecasting late Wednesday that third-quarter sales would likely fall about $1 billion short of Wall Street’s expectations. Nvidia also took a $1.22 billion inventory charge ahead of the release of its next-generation chip architecture, “Lovelace,” and analysts speculated on whether this was the bottom or whether data-center sales would weaken also.

“We expect our data-center revenue in the fourth quarter to increase on a sequential basis, anticipating an improvement in supply and new product ramps in cloud,” Murphy said. The company also forecast that 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 gain of 48% from a year ago. Data center has made up more than 40% of Marvell’s revenue over the past five quarters.

Analysts expect $695.2 million in data center, or a 8% increase.

Marvell expects third-quarter cloud sales to be flat sequentially and on-premise revenue to decline. Marvell reported that carrier infrastructure sales rose 45% to $285.2 million from the year-ago period, and that enterprise-network sales surged 53% to $340.3 million. Analysts expect a decline of 2% to $279.3 million in carrier infrastructure sales, and a 2% decline to $334.1 million in enterprise networking sales.

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

“Majority of this increase was in raw materials, and looking longer-term, as the supply chain starts to show improvement, we expect our [days of inventory] will start to decline,” Hu told analysts.

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

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

Revenue rose to $1.52 billion from $1.08 billion in the year-ago quarter.

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

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