Marvell Technology Group Ltd (MRVL) Earnings Report: Should You Overreact? XSD, SOXX & SOXL

On Thursday after the market closed, mid cap fabless semiconductor stock Marvell Technology Group Ltd (NASDAQ: MRVL) reported earnings and was slipping in after hours trading, meaning its worth taking a closer look at those earnings along with the performance of potential semiconductor benchmarks like the SPDR S&P Semiconductor ETF (NYSEARCA: XSD), iShares PHLX SOX Semiconductor Sector (NASDAQ: SOXX) and Direxion Daily Semiconductor Bull 3X Shares (NYSEARCA: SOXL). In case you aren't familiar with the term fabless semiconductor, it's a business model that involves the outsourcing the manufacturing of silicon wafers. Most semiconductor companies are actually fabless because of the high cost of building a facility and manufacturing fab. Therefore, fabless semiconductor companies can concentrate on the design and marketing of chips while outsourcing the actual production to larger foundry companies.

What is Marvell Technology Group?

Founded in 1995, mid cap Marvell Technology Group is a leading fabless semiconductor company that ships over one billion chips a year and has international design centers located in China, Europe, Hong Kong, India, Israel, Japan, Malaysia, Singapore, Taiwan and the US. Specifically, Marvell Technology Group's expertise in microprocessor architecture and digital signal processing, drives multiple platforms including high volume storage solutions, mobile and wireless, networking, consumer and green products.

As for potential semiconductor performance benchmarks, the SPDR S&P Semiconductor ETF tracks the S&P Semiconductor Select Industry Index through approximately 51 holdings; the iShares PHLX SOX Semiconductor Sector tracks the PHLX SOX Semiconductor Sector Index through 31 holdings; and the Direxion Daily Semiconductor Bull 3X Shares seeks a return that is 300% of the PHLX SOX Semiconductor Sector Index though the use of leverage.

What You Need to Know or Be Warned About Marvell Technology Group

Marvell Technology Group reported a 3% revenue increase to $958 million from $932 million in the fourth quarter of fiscal 2014 (ended February 1, 2014) and a 30% increase in revenue of $734 million for the first quarter of fiscal 2014 (ended May 4, 2013). GAAP net income for the first quarter of fiscal 2015 was $99 million verses GAAP net income of $97 million for the fourth quarter of fiscal 2014 and $53 million for the first quarter of fiscal 2014 while Non-GAAP net income was $144 million for the first quarter of fiscal 2015 verses non-GAAP net income of $151 million for the fourth quarter of fiscal 2014 and $98 million for the first quarter of fiscal 2014.

However, quarterly gross margin fell to 48.4% verses 54.3% a year earlier as demand for its chips used in third-generation mobile communication outweighed a rise in sales of its more profitable 4G LTE chips as Smartphone sales growth shifts away from North America towards China where buyers prefer handsets priced below $200 over more expensive devices like the Apple iPhone. In the earnings call (the transcript is available on Seeking Alpha here), the CFO commented:

"Our mobile and wireless end market grew strongly in the quarter, increasing approximately 30% sequentially and represented 33% of overall sales. During the quarter we saw a strong growth in China from multiple customers for 4G LTE products. In addition, our connectivity business also performed better than anticipated with only a slight decline in the quarter. Strong mobile platform sales and demand from game consoles were key drivers in the quarter."

The VP of Investor Relations commented:

"So far the uptake of our devices by customers in China has been very solid. We've noticed that subscriber strength in China mobile for LTE has many, many less (indiscernible) so far, but the expectation from what we hear from a lot of our customers for that to pick up as we go throughout the rest of this year."

And:

"I think the market in China is transitioning to LTE, so I think you will probably see a lot more subsidies come to the market starting in the second half of this year. As a result of which I think a lot of our customers are probably going to see a transition over the 4G LTE at a much faster clip."

Later on, the Chairman/CEO said:

"It is very hard for us to be able to predict what is the seasonality and something that just we need to be looking to the market, but one thing about the LTE in China -- one thing that we can make projection is that if our customer overbuild the LTE, what we have over inventory towards the end of the year. That's why when investors are asking us question and when our customer -- when we talk to our customers we always like to temper down the expectation of the ramp of LTE for this year."

And:

"…a year from now, we will have a lot more products portfolios from all the different price points. So there will be higher end devices. There will be lower end devices. So we believe that if LTE becomes successful in China, a lot of parts of the world will take notice that the performance of LTE is going to be -- and the cost of deploying LTEs will be actually lower than deploying the 3G on the pre-user basis."

Otherwise, it should be mentioned that Marvell Technology Group went into earnings with a trailing P/E of 24.75 and a forward P/E of 13.21 along with a forward dividend of $0.24 for a 1.6% dividend yield.

Share Performance: Marvell Technology Group vs. XSD, SOXX vs. SOXL

On Thursday, Marvell Technology Group rose 0.97% to $15.59 (MRVL has a 52 week trading range of $10.57 to $16.65 a share) for a market cap of $7.85 billion plus the stock is up 13.3% since the start of the year, up 36.4% over the past year and up 42.2% over the past five years. Here is a look at Marvell Technology Group's performance verses that of SPDR S&P Semiconductor ETF, iShares PHLX SOX Semiconductor Sector and Direxion Daily Semiconductor Bull 3X Shares:

As you can see from the above chart, Marvell Technology Group has been a bit of a mixed underperformer over the long term, but its recent performance has mirrored that of the benchmarks.

Finally, here are the latest technical chats for Marvell Technology Group, SPDR S&P Semiconductor ETF, iShares PHLX SOX Semiconductor Sector and Direxion Daily Semiconductor Bull 3X Shares:

The Bottom Line. Long term investors who believe in Marvell Technology Group might want to bulk up on shares should they go on sale when the market opens latter, but investors should also keep in mind what the technical charts look like for the stock along with SPDR S&P Semiconductor ETF, iShares PHLX SOX Semiconductor Sector and Direxion Daily Semiconductor Bull 3X Shares.