It has been about a month since the last earnings report for Marvell Technology (MRVL Quick QuoteMRVL - Free Report) . Shares have added about 2.3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Marvell due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Marvell Q2 Earnings & Revenues Outpace Estimates

Marvell reported second-quarter fiscal 2020 non-GAAP earnings of 16 cents, which beat the Zacks Consensus Estimate of 15 cents. However, it declined 43% from the year-ago quarter.

Marvell’s revenues of $657 million surpassed the consensus estimate of $650 million. However, the figure declined 1.2% year over year.

Strong year-over-year growth in networking business positively impacted the top line. Key deal wins across applications like infotainment, ADAS, telematics, central gateway and body domain controllers also acted as a tailwind.

However, due to the export restriction on Huawei, and other persistent macroeconomic challenges, the top line was affected on a sequential basis.

Further, higher operating margins put pressure on the bottom line.

Quarter Details

In the end markets, storage revenues (42% of total revenues) dropped 18% year over year to $275 million, and 1% sequentially, due to pressure from the export restriction. Nonetheless, significant demand from storage controller customers in the HDD, SSD and fiber channel end markets positively impacted revenues from this segment. The slow but steady depletion of excess inventory in supply chains of certain storage controller customers was also a tailwind.

The networking business (50%) jumped 16% year over year to $329.6 million, driven by seasonal growth. Relatively higher demand from Chinese enterprise and data center customers who were not affected by the Huawei ban was a breather. However, the Huawei ban and negligible demand from base station OEMs that are currently migrating 4G to 5G, led to a 3% sequential decline in revenues from this segment.

Other product (8%) revenues during the fiscal second quarter increased 13% on a year-over-year basis to $52.1 million.

During the fiscal second quarter, the company also successfully reached its operating expense reduction goals post the Cavium acquisition.

Margins

Marvell’s non-GAAP gross profit came in at $415.5 million, down 2% on a year-over-year basis reflecting a weaker product mix due to impact of export restriction and low storage revenues. Non-GAAP gross margin contracted 40 basis points (bps) to 63.3%.

Non-GAAP operating expenses rose 13.7% year over year to $279.8 million. However, due to the cost synergies achieved from the integration of Cavium, Non-GAAP operating expenses declined 5.1% sequentially. Non-GAAP operating margin contracted 600 bps to 20.7%.

Balance Sheet

Marvell exited the quarter with cash, cash equivalents of $573.5 million compared with $571.9 million in the previous quarter.

The company’s long-term debt totaled $1.69 billion compared with $1.73 billion in the previous quarter. Cash from operating activities amounted to $73.14 million compared with $165.8 million in the prior quarter.

During the quarter, Marvell paid dividend of around $40 million to shareholders and bought back $60 million of its shares.

Guidance

Marvell projects third-quarter fiscal 2020 revenues of $660 million, up or down up to 3%.

In the fiscal third quarter, demand from enterprise networking end market storage controllers is expected to remain soft due to continued weak macroeconomic conditions. Impact of the export restrictions and accounting for the customer factory transition is expected to lead to an approximate low-single digit sequential decline in networking revenues.

Seasonal decline in Wi-Fi revenues is also expected to be an overhang for the fiscal third quarter.

An increase in demand for storage controllers from the data center and enterprise markets is likely to be a positive. Demand, particularly from high-capacity nearline drives, combined with some improvement in the SSD market after a period of under shipment, is expected to drive storage revenues. Demand for fiber channel adapter is also expected to rise in the fiscal third quarter.

However, demand for HDDs for PCs in gaming is expected to remain weak, but with slight seasonal growth, resulting in an approximate high single-digit sequential growth in fiscal third-quarter storage revenues.

Management expects non-GAAP gross margin between 63% and 64% for the quarter, reflecting a weaker product mix due to impact of export restriction and low storage revenues.

Non-GAAP operating expenses are estimated to be $280 million, which can be further stretched by $2.5 million up or down.

The company anticipates non-GAAP earnings per share in the band of 15-19 cents.

How Have Estimates Been Moving Since Then?

Estimates review followed a downward path over the past two months. The consensus estimate has shifted -36.67% due to these changes.

VGM Scores

At this time, Marvell has a subpar Growth Score of D, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Marvell has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.