Marvell Technology Inc. said it’s expecting its revenue to decline as it enters the final quarter of the fiscal 2024 year, and its stock was trading more than 4% lower in the after-hours session today.

The lower forecast took the sheen off an otherwise decent quarter for the company, which topped analyst’s targets on earnings and revenue.

In the third quarter, the computer chipmaker delivered earnings before certain costs such as stock compensation of 41 cents per share, down from a profit of 57 cents one year earlier but above the Street’s consensus estimate of 40 cents. In terms of revenue, Marvell took in $1.42 billion, down 8% from a year earlier but exceeding the Street’s forecast of $1.4 billion.

All told, Marvell logged a net loss of $164.3 million in the quarter, having recorded a small profit of $13.3 million in the year-ago quarter.

Marvell is a key player in the world of automotive, data storage and networking chips. Its primary customers are automotive companies, cloud computing providers and communications firms. The company is much smaller than fellow chipmakers such as Intel Corp. and Nvidia Corp., but claims to be a rising player in the artificial intelligence industry thanks to the capabilities of its networking chips.

During the quarter, Marvell’s data center revenue declined 11%, to $556 million, but still came in ahead of the consensus estimate of $525 million. On the bright side, revenue from that segment was up more than 20% on a sequential basis, and officials predict more than 30% sequential growth in the current quarter.

On a conference call with analysts, Marvell President and Chief Executive Matt Murphy (pictured) hailed the growing strength of the company’s data center segment. “The real question is the data center strength and how does that continue?” he asked. “It’s too early to call.”

The reduced revenue stems from the fact that many of the company’s customers are still working through their existing chip stockpiles, which occurred after the COVID-19 pandemic-fueled buying spree tailed off. As customers work to clear their inventories, it damages the prospects for companies such as Marvell.

Murphy added that the company does expect to see year-on-year growth in the data center business as it enters fiscal year 2025.

In Marvell’s other business segments, the carrier infrastructure unit was the best performer, with revenue growing by 17% from a year earlier, to $316.5 million. The automotive and industrial segment grew even faster, with sales rising 26%, to $106.5 million. On the other hand, the enterprise networking and consumer segments both saw sales decline. The former generated revenue of $271.1 million, down 17%, while the latter pulled in $168.7 million in sales, down 5%.

“The diversification of our portfolio is serving us well, with strong growth from AI and cloud carrying us through a softening demand environment in other end markets,” Murphy insisted. “These dynamics are reflected in our forecast for overall revenue to be flat sequentially in the fourth quarter at the midpoint of guidance.”

Analyst Holger Mueller of Constellation Research Inc. agreed with Murphy’s assessment that Marvell may have reached the bottom of a decline driven by the end of the pandemic-era supply troubles. “It has shown this with its sequential growth and the doubling of its AI and data center revenue stream,” Mueller said. “Investors will be reassured to see this, but they remain concerned by the fact Marvell is losing money. They will want to see Murphy and team return to profitability as soon as possible, but it won’t happen in this financial year.”

According to the analyst, the main challenge for Marvell’s management will be determine if its possible to grow their way back into profitability or embark on more cost-cutting measures to get there. “If it’s to become profitable in the next financial year, as investors want to see, the team will need to determine if its cost base needs some adjustment or not,” he added.

Marvell is forecasting total fourth-quarter revenue of $1.42 billion, plus or minus 5%, below the Street’s forecast of $1.46 billion.

Photo: Marvell