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Marvell Shares Get Mugged

The chipmaker's big upside works against its quarterly forecast.

Updated from 4:39 p.m. EST


Marvell Technology

(MRVL) - Get Marvell Technology Inc. Report

boosted its top line 46% in the third quarter, as the company's consumer electronics and PC chips sold briskly ahead of the holiday shopping season.

But the strong results, which beat Wall Street expectations, were greeted with hostility by investors, who stomped all over the stock in extended trading Tuesday.

Marvell's shares plunged 9.2%, or $1.53, to $15.12, setting a new 52-week low for the company.

Analysts pointed to various reasons for the rough treatment.

According to Stifel Nicolaus' Cody Acree, Marvell's third-quarter revenue upside made its fourth-quarter guidance look weak, since the higher base robbed the company of some of its sequential growth rate.

Wall Street was looking for 6% sequential growth rate in the current quarter; Marvell's forecast translated to 3% sequential growth.

Something like that might not ordinarily be a huge deal, Acree says, but given Marvell's ongoing problems -- the company has yet to replace its CFO and general counsel it lost in an unusually messy stock option investigation -- investors appear to be less forgiving.

Stifel Nicolaus makes a market in Marvell shares.

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The fact that Marvell's current quarter will be 14-weeks instead of the usual 13-weeks added further trouble, as it diluted Marvell's projected sales, even as Marvell said operating expenses will increase due to the extra week.

Marvell executives said the company was committed to cutting costs and improving profit margins, and announced layoffs of about 400 employees, or 7% of its workforce, chiefly in the U.S. and Israel.

The move will be completed in the fourth quarter and will result in a charge of $8 million during the quarter.

"Marvell is making progress to reduce costs and streamline operations, and we view this as a necessary additional step towards achieving our long-term financial model," CEO Sehat Sutardja said in a statement.

In the three months ended Oct. 27, Marvell had a loss of $6.4 million, or one penny a share, compared to net income of $6 million, or one penny a share, at this time a year ago.

Excluding stock option compensation and other expenses, Marvell said it earned 14 cents a share.

The average analyst estimate called for Marvell to earn 8 cents a share excluding stock expenses, according to Thomson Financial.

Sales totaled $758.2 million, compared to $520.4 million at this time last year.

Analysts polled by Thomson Financial were looking for $711.6 million in sales.

Marvell said it benefitted from strong sales of Wi-Fi chips for both PCs and consumer devices during the quarter, with revenue in the business up 200% year-over-year. Sales of storage chips turned in strong growth during the quarter as well, according to Marvell.

Sutardja ascribed the strong sales growth to Marvell's investments in a broad range of technologies and the company's ability to integrate the technology into products aimed at various markets.

In the current quarter, Marvell said it expects revenue of roughly $780 million. Analysts polled by Thomson Financial were looking for $755 million.