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Marvell Technology Group (NASDAQ: MRVL) has got off to a muted start in 2018, as shares of the chipmaker have lagged the broader semiconductor index so far. But it won't be surprising if it eventually steps on the gas thanks to all-around improvements in its business, which are evident from its latest quarterly performance.
Let's take a look at what's working for Marvell and why it could be a good stock pick for investors looking for growth at a reasonable valuation.
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Marvell's turnaround has finally arrived
Investors waiting for a turnaround at Marvell should be quite happy with its latest quarterly report. The company's revenue shot up almost 9% year over year to $615.4 million in the fourth quarter, helping the company get back into the black. More specifically, Marvell's net income came in at $48 million last quarter as compared to a loss of $80 million in the prior-year period, on a GAAP basis.
After adjusting for one-time expenses, Marvell saw a 40% increase in net income to $164.7 million, or $0.32 per share. The were ahead of Wall Street's expectations, as analysts were originally looking for earnings of $0.31 per share on revenue of $611 million. What's more, the company's guidance for the ongoing quarter indicates that its momentum is going to continue.
Marvell expects $600 million in first-quarter revenue at the mid-point of its guidance range, while non-GAAP earnings are expected at $0.31 per share. This compares favorably to the year-ago quarter's earnings of $0.01 a share on revenue of $541 million. By comparison, the chipmaker's revenue was down 12% year over year during the same period last year.
So the comeback looks good. More importantly, the company should be able to sustain its momentum thanks to the solid catalysts it enjoys across different verticals.
What's working for Marvell?
The storage business supplies 53% of Marvell's revenue, and it has played an instrumental role in the company's turnaround. Revenue from this business increased 4% year over year last quarter, driven by the strong demand for the company's solid-state drive (SSD) controllers. As it turns out, SSD controllers accounted for almost 30% of the company's storage revenue last year.
Looking ahead, it won't be surprising if SSDs play a greater role in Marvell's top-line performance thanks to the massive growth potential of this market. IDC estimates that worldwide SSD shipments will increase at a compound annual growth rate (CAGR) of 15.1% through 2021 thanks to their growing adoption in PCs, tablets, and enterprise applications such as data centers.