Marvell Hit Hard After Warning

The chipmaker's shares sink 14%.
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Updated from 9:15 a.m. EDT

Marvell Technology's

(MRVL) - Get Report

shares were sinking a day after the chipmaker said third-quarter revenue will be less than expected and told investors it will restate past financial results because of discrepancies in its past stock-option grants.

The news took the shares down more than 15% in early trading Tuesday. The stock was recently off $2.94 to $16.15, putting it under its regular-session 52-week low.

The Santa Clara, Calif., company said revenue in its fiscal third quarter will be down about 10% from the $574 million in second-quarter sales.

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

Marvell blamed the shortfall to slumping demand among its hard-disk-drive customers. Marvell 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) - Get Report

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.

The warning marks the second consecutive revenue shortfall for a company that has wowed investors with solid growth over the past several years. In August, Marvell posted second-quarter sales that came in below its expectations. And the $580 million third-quarter revenue guidance that Marvell served up at the time was significantly below analysts' third-quarter projections of $622.5 million.

The company did not report profit figures at the time because of its ongoing internal review of its historical stock-option practices. Marvell is among more than 100 companies under scrutiny for a widening controversy involving the backdating of stock options.

Marvell said it expects a significant increase in its general and administrative expenses in its third quarter due to higher-than-expected costs incurred from its ongoing stock-option review.

In a separate release after the bell Monday, Marvell said that the special committee of its board of directors looking into past stock-option practices has reached a preliminary conclusion that the actual measurement dates of certain past stock-option grants likely differ from the recorded grant dates for such awards.

As a result, Marvell's board has concluded that the company will need to restate previous financial statements to record additional noncash charges for stock-based compensation expenses. Marvell said it has not yet determined the amount of these charges or which specific reporting periods they affect. But the company said that investors should no longer rely on any financial statements issued since the company went public in 2000.

Marvell said it intends to file its restated financial statements as soon as possible after the completion of the stock-option review.

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