While Marvell Technology Group (MRVL) fell in after-market hours on Thursday after its third-quarter guidance came up short of expectations, many analysts are not flinching in their bullish views as the promising shift to 5G inches forward.
Shares of the Bermuda-based semiconductor company fell about 5% in pre-market trading, but quickly built back into the green shortly after the open Friday. The move was certainly aided by numerous analysts advising investors to ignore the short-term earnings revision reeled in by a challenging macro environment headlined by the ongoing ban on U.S. companies doing business with Chinese telecom giant Huawei in the near term, instead advising eyes to shift to the long-term secular drivers for the stock.
"Looking beyond the quarter/guide, we believe the co's 5G product ramp remains intact beginning with Samsung (SSNLF) in F3Q20 and we believe Nokia (NOK) in 2H FY21," Deutsche Bank analyst Ross Seymore said. While Marvell's sizing of this 5G business as a $600 million opportunity is smaller than the ~$1 billion potential we have highlighted, we believe this delta is solely due to conservatism from MRVL management."
He suggested that the $1 billion windfall that was initially expected from the prominent shift in the semiconductor space could well be in play, especially as the company not only ramps for new installations of Samsung's 5G capabilities, but also retrofits existing base stations for the Korean giant.
"We recommend investors take advantage of any near-term weakness that follows the co's softer guide/5G conservatism as we believe the combination of a strong 5G ramp, a normalizing Storage business, and an improved business mix/balance sheet post the Avera/AQ/WiFi deals should yield tailwinds for MRVL shares through the end of 2019 and into 2020," Seymore concluded.
Some Debate on Storage
The main concern remaining for Marvell is in its storage business that has been heavily impacted by trade restrictions in China, adding to concerns on the slowdowns seen in networking.
"The storage remains to be an extremely important business for us," CEO Matt Murphy said on Thursday evening. "It's a profitable business. It's one where we have strong technology leadership and market position, and we have a lot of customers that are counting on us to keep delivering the solutions that we are."
With the importance of the business clearly stated, but the overhang of trade tensions remaining, the question of when the segment will truly bottom is a pivotal point of conjecture.
"The company is not seeing the rebound in storage that we had hoped for given that storage has declined 32% in the last three quarters, and enterprise networking is showing the same weakness that we have seen elsewhere," Morgan Stanley analyst Joseph Moore lamented. "We expect the company to sustain its market share in storage but don't expect to see much growth."
The key segments lack of upside led Moore to assess the sector with a "Cautious" outlook rating and a "Neutral" rating on shares of Marvell.
Still, the more optimistic crowd among analysts noted that this level of uncertainty is precisely the moment to strike and get ahead of the suspected turnaround in inventory dynamics.
"Marvell is finally seeing a recovery in its storage business after three quarters of a dramatic inventory correction," Piper Jaffray analyst Harsh Kumar advised clients. "We are optimistic that storage has bottomed, networking will come back, and the 5G base station business will ramp hard in the near future."
He added that for longer-term investors, the weakness following the quarterly report and the inflection in inventory signal a key entry point ahead of numerous catalysts in the next year.
"We feel the Marvell business appears to be bottoming and is well poised for growth as we head into the October quarter and into next year," Kumar concluded.
Don't Panic
All in all, those willing to target Marvell as a key stock for the 5G shift shouldn't be shaken by quarter-to-quarter conservatism.
"Although storage is weak, MRVL diversification efforts should help drive a rerating as a diversified comm. semi company," Barclays analyst Blayne Curtis declared. "There is nothing from this report that is different than we saw from others and we still believe the secular 5G growth story is the best in our space."
With the move to 5G still in its relative infancy, Curtis retained his confidence in the long-term prospects for the stock as the secular shift progresses.
The shares battled back to an over 1% gain shortly after the open, a remarkable recovery from the post-print pessimism.
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