Marvell's Accounting 'Issues' Force These Analysts To The Sidelines

• The share price of Marvell Technology Group Ltd. MRVL has declined by 46.7 percent in the last six months.
• Morgan Stanley’s Joseph Moore has downgraded the rating on Marvell Technology from Overweight to Equal-weight, while lowering the price target from $17.50 to $9.50.
• In its July quarter report, the company had mentioned an audit committee investigation regarding revenue recognition.

Moore expects the investigation to lead to a period of considerable uncertainty for the stock. “We knew this was a turnaround requiring patience, and were prepared for business to be difficult in light of ongoing weakness in PCs, but the accounting shortcomings are surprising and concerning,” Moore stated.

The company had mentioned that 7-8 percent of the revenue recognized in 2Q was based on the original date when the customer request was expected to be “received and earned” in 3Q. However, Marvell Technology also said that the revenue was “no longer available for receipt,” which especially impacted the hard disk drive segment.

According to the Morgan Stanley report, Marvell Technology appears to have been “boosting current quarterly sales by pulling forward sales from the subsequent quarter.” The audit committee was expected to review controls associated with revenue recognition and “implement more conservative policies.”

“Combined with weaker industry demand, this implies heightened earnings uncertainty and risk for MRVL. Further, we see risk of incremental negatives such as shareholder lawsuits and SEC action,” Moore explained.

However, Moore also believes that the stock has value at the current levels, and that the current stresses might motivate Marvell Technology to restructure the company.

CY15 and CY16 revenue and non-GAAP EPS estimates have accordingly been lowered.