Marvell shares fell as persistent supply constraints dampened the data center outlook

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


shares fell 3.4% after hours, after rising 5.5% in the regular session to close at $55.09. Shares are down 37% year to date, compared with a 25% drop by the PHLX Semiconductor Index

and a 12% drop from the S&P 500

Marvell forecast adjusted earnings of 56 cents to 62 cents per share on revenue of $1.51 billion to $1.61 billion for the third quarter. Analysts had estimated earnings of 61 cents per share on revenue of $1.58 billion for the third quarter.

“We continue to see healthy demand for our products, excluding consumer HDDs, 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 centers, on a year-over-year basis, we expect 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 demand on a consistent basis.”

It’s hot on the heels of chip giant Nvidia Corp.

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

“We expect our data center revenue in the fourth quarter to increase sequentially, anticipating improved offerings and growth in new cloud products,” Murphy said. The company also forecast data center sales to decline sequentially in the mid-single digits on a percentage basis from second-quarter sales of $643.4 million, or a 48% year-over-year gain. The data center has accounted for more than 40% of Marvell’s revenue over the past five quarters.

Analysts expected $695.2 million in the data center, or an 8% increase.

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

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

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

“In line with our strategy to secure long-term supply, we have increased our long-term purchasing commitment for the capacity to support a large number of design wins,” Hu said.

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

Revenue rose to $1.52 billion from $1.08 billion in the prior quarter.

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

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