Marvell Technology Group (MRVL) shares fell fast in pre-market trading after a solid earnings report was eroded by guidance figures that suggest the semiconductor company's cyclical recovery is taking slightly longer than expected due to trade war impacts.
The headline numbers for the Bermuda-based tech company narrowly beat lowered estimates on Wall Street despite falling significantly year over year, with revenue charting in at $657 million and adjusted earnings per share of 16 cents. Analysts had forecast 15 cents in EPS on $649.8 million in revenue.
"During the second quarter of fiscal 2020 Marvell delivered solid results with revenue above the midpoint of guidance despite the challenging macroeconomic environment creating weakness across severe end markets and the impact from the current export restrictions on Huawei," CEO Matt Murphy said. "We expect both of these factors to continue to impact us in the third quarter, but as we'll discuss we remain well positioned to capitalize on infrastructure opportunities spanning 5G, data center, enterprise and automotive applications as we look forward to our next fiscal year."
However, the difficulties in the third quarter were significant, prompting a cut in revenue guidance from $695 million to $660 million and a cut in guidance on EPS forecasts from 21 cents to a range of 15 cents to 19 cents.
"In our third quarter we face a worsening macro environment along with the ongoing impact from the current restrictions on shipments to Huawei, offset by a stabilizing storage business and the earlier than expected first production shipments of our 5G solutions," Murphy said.
With mainland China being the company's largest market, representing 40.4% of total revenues, and Huawei being the key customer in the region, it is little wonder that there would be some concern on the map ahead as restrictions remain in place.
The cautious outlook driven by the macro pressures has clearly overshadowed the quarterly results and left shares sliding about 5% for much of the pre-market session.
"It's a very disappointing outlook and shares are negatively reacting," Jim Cramer's Action Alerts PLUS team commented. "We would not be surprised to see Marvell's cautious outlook ripple through to other semiconductor stocks in Friday's session."
While some similarly China-exposed semi stocks like Qualcomm (QCOM) are indeed falling on Friday morning, the broader move is more mixed. For example, Micron (MU) and Texas Instruments (TXN) both gained in early pre-market hours despite larger revenue bases in China.
"Overall, we are not pleased with the guidance, but still see plenty of reasons to be invested in this one for the longer term," the AAP team concluded, noting a ramp in 5G still to come. "When we bring the 5G ramp with the strategic benefits of the recent M&A activity and the near-term stabilization in storage, the potential strength of Marvell's earnings power over the next two years looks very attractive. We believe the long term thesis is intact, it's just moving a bit slower than what we had hoped."
That slower pace is sinking shares on Friday, offering more time for investors to mull the opportunity as the macro pressures weigh on near term results and a true bottom in the cycle is yet to be found.
For more on where the charts are suggesting the stock can find firm footing again, click here.