Marvell’s downbeat guidance wasn’t a big surprise — but these factors were

Marvell Technology Inc.’s latest round of downbeat guidance didn’t necessarily come as a shock, but the company’s cautious commentary on a second-half recovery may have.

That’s according to Evercore ISI analyst C.J. Muse, who was still willing to give the company a pass for taking a more measured stance on the quarters to come.

“Management’s more subdued tone for [second-half] recovery might come as a negative surprise, but following three negative revisions it seems clear that a prudently conservative outlook at this time makes real sense,” he said in a note to clients following Marvell’s
Thursday afternoon earnings report.

Read more: Marvell stock declines after inventory corrections weigh on earnings forecast

Muse kept his outperform rating on Marvell shares in the wake of earnings, writing that “estimates are clearly reaching a bottom” with potential for continued strength in areas like 5G and automotive, as well as the possibility of a data-center recovery in the second half of the calendar year.

Raymond James analyst Srini Pajjuri agreed that it was “not entirely surprising” that Marvell came up short with its revenue forecast, but he noted the company’s “weaker gross-margin outlook and the delay in cloud-optimized product ramp were unexpected.”

He kept the faith as well, reiterating an outperform rating and adding that though he was “disappointed” by the outlook, in his view, Marvell’s “margin hiccups are temporary.”

Marvell’s stock was getting punished in Friday’s session, however, and was down 8% in morning action.

“An in-line print (after last quarter’s big guidance cut), was overshadowed by another guide down as Marvell’s inventory correction continues,” wrote Matthew Ramsay of TD Cowen. “Adding to the negative near-term vectors, mix is weighing on gross margin, and a paused buyback pressures [earnings per share].”

Ramsay reiterated his outperform rating on Marvell’s stock, though he trimmed his target price to $50 from $55.

UBS analyst Timothy Arcuri commented that on a positive note, the latest report makes Marvell’s estimates “even further de-risked,” and that the company “still has new content locked in with major cloud customers,” while “shipments are a question of when, not if.”

At the same time, he noted that Thursday’s report caps off the second instance “in which Marvell has been too bullish, so the stock very well may remain in the penalty box until investors can regain confidence in management’s guidance and commentary.”

He maintained his buy rating on the stock, pulling down his price target to $60 from $75 but saying that “the number of growth vectors here is still very high for a company that is still not very big compared to most peers.”

Analysts are almost uniformly bullish on Marvell: Of the 31 tracked by FactSet who cover the stock, 28 have buy ratings and three have hold ratings, with an average price target of $56.74, about one-third above current levels.