Marvell Technology's Shellacking Continues

Investors continued to punish Marvell Technology Group's(MRVL Quote) stock early Tuesday, a day after the company shocked the Street with a double dose of bad news.

Marvell shares sank 14% in midday trading, setting a new 52-week low, in the wake of the chipmaker's news that third-quarter revenue will be less than expected and that the company will restate financial results because of discrepancies in past stock-option grants.

Shares of Marvell closed Monday's regular trading session down 1.4%, or 28 cents, at $19.09.

The Santa Clara, Calif., company said sales in the current quarter will drop about 10% from the $574 million in second-quarter revenue.

Analysts polled by Thomson First Call were looking for revenue to increase about 1.4% sequentially, to $582.3 million. EPS is projected to be 21 cents.

Marvell attributed the shortfall to slumping demand among its hard-disk drive customers. The chipmaker said the soft demand stems from weaker-than-normal seasonal shipments in the PC market, as well as excess inventory held by some of its significant storage customers.

Hard-drive maker Western Digital(WDC Quote) slipped 2% in sympathy to $17.38 in early trading.

"We view this decline in our revenues as a short-term event, and we remain focused on continuing to aggressively invest in our business and to expand the reach of our technology into a growing number of high-volume markets," said Marvell CEO Sehat Sutardja.

Wall Street analysts pointed to the recent merger between hard-drive makers Seagate Technology(STX Quote) and Maxtor as playing a key role in Marvell's problems.

Marvell's business as a supplier of chips for Maxtor's 160-GB hard drive, for instance, appears to have been a victim of the merger, as Seagate ceased accepting new shipments of components for the Maxtor drive after July, according to Needham analyst Charlie Glavin.

"Further, we believe MRVL was aggressively shipping into the channel exiting F2Q and had to trim numbers when orders did not pan out," Glavin wrote in a note to investors.

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