David Einhorn Feels Pinch As Marvell Technology Drops 11%

David Einhorn Feels Pinch As Marvell Technology Drops 11%
David Einhorn <a href="http://www.InsiderMonkey.com" target="_blank">InsiderMonkey</a> (CC BY-ND 2.0)

David Einhorn is not having a good day after Christmas. One of his top holdings, Marvell Technology Group Ltd. (NASDAQ:MRVL), had a major ruling against it earlier today in a patent case. The ruling found the company responsible for patent infringement and liable for more than $1 billion in damages.

David Einhorn Feels Pinch As Marvell Technology Drops 11%

The case, which was argued in a U.S. District court, was brought by a professor at Carnegie Mellon University. The professor, Jose Moura, alleged that products sold by Marvell Technology Group Ltd. (NASDAQ:MRVL) infringed on patents he held in the United States.

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The company said that their work was based on older patents that they themselves held. The court found that Marvell infringed on the patents knowingly and had no reasonable defense. That ruling led to the huge sum the company was ordered to pay in damages to the CMU professor.

If the judge opts to find the firm guilty of willful violation of a patent, the amount awarded in damages could be multiplied to a much higher figure. To put a figure like that in perspective, Marvell Technology Group Ltd. (NASDAQ:MRVL) has a total market capitalization of just over $4 billion today. The company’s revenue for its 2012 fiscal year was just over $4 billion, and its non-GAAP profit was $615 billion.

The ruling is clearly bad news for investors in the company, and the most prominent among them is David Einhorn. Last October it was revealed that he had increased the size of his position in the company by 40% to more than 30 million shares. With shares down over 11%, he lost approximately 30 million today.

Einhorn has repeatedly mentioned the company in statements about his portfolio. The firm was one of his top 5 holdings last October, though it is unclear exactly how much of the company he now owns. It is probable that today’s ruling has cost him a large amount of money.

Marvell Technology Group Ltd. (NASDAQ:MRVL) has lost almost 45% of its value so far in 2012. The company has lurched from disaster to disaster during the year as some of its most valuable product lines became less and less popular. An example is the firm’s hard drive business, which suffered from the tablet cannibalization of laptops and the greater prevalence of flash storage in notebooks.

The firm also suffers from a consumer base largely made up of a single customer. That customer, Research In Motion, is currently facing its own problems, and those have of course affected Marvell Technology Group Ltd. (NASDAQ:MRVL) business. Today’s announcement could end the company based on its magnitude alone.

Today’s judgement does not simply mean that the company will have to pay damages to the patent holder. It also means that they will not be allowed to use those patents in future unless it licenses them. That means higher costs in future, and lower profits.

It is unclear how much of the stock David Einhorn currently holds and whether or not the investor chose to take the opportunity today to sell off part of his holding. Either way, it seems that Marvell Technology Group Ltd. (NASDAQ:MRVL) is not an ideal pick going into 2013.

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