Marvell Technology Drops on Internal Probe, Unexpected Loss

  • Chipmaker focuses on whether management set `appropriate tone'
  • `We consider the stock to be unownable,' analyst says

Marvell Technology Group Ltd. plunged the sharpest in almost 13 years, after disclosing an internal investigation of its accounting and reporting weakening demand for personal computer parts.

The chipmaker’s shares dropped 16 percent to close at $8.84 in New York on Friday, the biggest single-day decline since October 2002. The stock has tumbled 39 percent this year.

The investigation is focusing on whether revenue was recognized earlier than it should have been and whether senior management “set an appropriate tone for an effective control environment,” the company, based in Santa Clara, California, said in a statement.

“We consider the stock to be unownable during such an investigation, and it will likely take a considerable amount of time for investors to regain confidence in management,” Chris Caso, an analyst at Susquehanna Financial Group, wrote in a note to investors.

The company posted a loss of $382.4 million for its fiscal second quarter, including a charge of $394 million as a contingency against pending litigation. Analysts on average had predicted a profit of $11.9 million for the period ended Aug. 2, according to data compiled by Bloomberg.

Ratings Cut

As many as three analysts cut their ratings on the chipmaker, the management of which is dominated by its founder’s family.

Marvell, founder and Chief Executive Officer Sehat Sutardja and two other executives were accused in a shareholder lawsuit in Manhattan federal court of making false or misleading statements before the disappointing earnings report and the disclosure of the internal probe. Investor Daniel Luna seeks to represent others who bought Marvell securities from Nov. 20 to Sept. 10, according to the complaint.

Marvell’s audit committee is looking into about 7 percent to 8 percent of revenue recognized in the second quarter that would have been received in the third period, according to the statement.

Two of Marvell’s top three largest shareholders, according to data compiled by Bloomberg, are Sehat Sutardja and his brother Pantas Sutardja. Weili Dai, Sehat Sutardja’s wife, is the company’s president.

Sukhi Nagesh, the company’s head of investor relations, is serving as interim
chief financial officer after the retirement of Michael Rashkin in May.

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