Marvell Cleaning Up In Tough Times

Earlier in the month, Marvell Technology Group (NASDAQ:MRVL), one of the leading chip makers, reported fourth quarter results that beat estimates. However, in response to the deteriorating economic environment, Marvell continued with its cost reduction efforts and cut about 7% of its workforce. For a closer look at Marvell, see Vijay Nagarajan’s strategy series from last year, although the valuation analysis went completely off the rails when the financial crisis hit in September.

For fiscal year 2009 ending January 31, 2009, revenue was up 2% to $2.95 billion. GAAP net income was $147 million, or $0.23 per share compared with a GAAP net loss of $114 million, or $0.19 per share last year. Non-GAAP net income was $482 million, or $0.76 per share.

Mainly due to erosion in the PC end-market, Q4 revenue was down 39% y-o-y and 35% q-o-q to $513 million, versus analyst estimates of $510.9 million. In January Marvell lowered its guidance to $500 to $520 million from$690 to $730 million last quarter. GAAP net loss was $65 million, or $0.11 per share in the quarter versus net income of $1 million or $0.0 per share last year. Non-GAAP profit was $0.05 per share, beating analyst estimate of $0.01 per share.

A major point in Marvell’s favor is that it has been able to keep its gross margin above 50% in the face of the economic challenges. GAAP gross margin for Q4 was 50.7% compared to 48.1% last year and 52.1% last quarter. GAAP gross margin for fiscal 2009 was 51.6% compared to 48.3% for fiscal 2008. The sequential decline in the gross margin was mainly due to lower revenues offset by lower spending. It had undertaken aggressive cost reduction measures such as cancellation of bonuses, salary freezes, and consolidation of some facilities, something AIG seems reluctant to do. It plans to reduce its headcount by 15% by the end of the year.

Marvell ended the quarter with cash, cash equivalents and short-term investments of $952 million and no debt. Cash flow from operations in the quarter was down 33% y-o-y and 58% q-o-q to $109 million. Cash flow from operations for fiscal 2009 was $681 million, versus $177 million for fiscal 2008.

Based on its performance and the unstable market conditions, Marvell expects first quarter revenues in the range of $419-530 million, down 4% to up 3% sequentially and down 34-39% y-o-y. Non-GAAP EPS is expected in the range of $0.03 to $0.05 per share. It is currently trading around $8 with a market cap of about $5 billion.