GS:Sales upside, restructuring positive;14-week 4Q causes confusion
11/27/07
What's changed
Marvell reported FY3Q (Oct) sales of $758mn (+15% qoq), well ahead of our ests., Street, and guidance of $710mn, with strong trends across all segments. EPS (op, inc ESOs) of $0.05 beat our est. of ($0.02) on higher sales, higher GM (47.7% vs our 47.4%),
lower ESO expense ($55mn vs our $60mn), and taxes ($6mn benefit vs our $12mn expense), but higher p/f OpEx ($280mn vs our $274mn). EPS (op, ex ESOs) of $0.11 was above our estimates and Street’s $0.08. FY4Q (Jan) sales guidance is $780mn (+3%), vs
our $736mn and Street $755mn; F4Q is a 14-week period detailed in the 10-Q and noted in our preview, but lack of more upfront communication could have caused confusion given the after market stock action. Marvell announced a 400 person (~7%) workforce
reduction, which will drive ~$10mn/qtr OpEx savings and help Marvell drive to its target model.
Implications
We are updating our model to reflect higher near-term sales, but FY09 and FY10 are
relatively unchanged on an absolute basis given our firm’s bias of a conservative macro view. Still, our EPS improves on the restructuring and lower tax rate, which returns to 10% p/f
historic rate. Our F08, F09, and F10 EPS (op, inc ESOs) go to $0.01, $0.29, and $0.59 from ($0.08), $0.23 and $0.55. We retain a Buy rating as we are encouraged by MRVL’s growth prospects and increased margin focus, but recognize investors have been shaken by recent missteps and could wait for a new permanent CFO.
Valuation
Our normalized EPS goes to $0.46 from $0.45, but we are lowering our 12-month price target to $19 from $21 as we adjust our target PEG to 1.4x from 1.5x given view of lower reduced market risk tolerance.
Key risks
Primary risks to our view on Marvell are end-market trends, ability to gain share in core markets
and penetrate new markets, ongoing scrutiny related to past options issues, and replacement of key
executives, including CFO.
Market Data 
Markets 
AI
