Marvell Technology shares tumbled as much as 15.17% to $8.96 per share in early trading today after the company said it is investigating its accounting procedures. The company also warned today that it won’t be able to file its earnings report for the quarter that ended on Aug. 1 in the allowed time frame.
Among the investors of note that have bought Marvell shares this year is David Einhorn’s Greenlight Capital.
Marvell Technology investigates internally
This morning Marvell said in a press release this morning that it its audit committee is conducting an independent investigation of some of the company’s revenue recognition practices in the second quarter of fiscal 2016. The company said that based on the dates of some customer requests, some of the revenue recognized in the second quarter won’t actually be available until the third quarter.
At the end of October, the value investor and fund manager, Mohnish Pabrai, gave a virtual presentation and participated in a Q&A session with Boston College and Harvard Business School students. Pabrai on intrinsic value Among the subjects discussed, Pabrai was asked about his approach to calculating a company's intrinsic value and the data points Read More
The audit committee is also looking into associated issues related to “management’s operating style” during the second quarter. So far, the investigation has been focused on 7% to 8% of the revenue reported for the second quarter. That revenue suggested growth over the previous quarters and indicates that demand for some of Marvell’s products is actually softening. The company said this was particularly related to its storage end market.
No material issues yet
The press release also states that in spite of these concerns, the audit committee has not yet found any “material issues” pertaining to Marvell’s second quarter earnings report. The committee also doesn’t think its previous quarterly reports will be impacted by the investigation.
They are examining some of the company’s internal financial reporting controls, especially those relating to setting up reserves for litigation and whether “senior management’s operating style resulted in an open flow of information and communications to set an appropriate tone for an effective control environment.” The committee is talking about making changes to Marvell’s internal financial reporting controls as well.
Marvell Technology posting losses
Marvell has been underperforming expectations this year, so the disclosure of the investigation makes things even more difficult for it. Although the company said it can’t release its second quarter earnings report on time, it did say preliminary revenue was $711 million for the second quarter, which was a 26% decline year over year and came up short of the consensus estimate of $721.9 million.
Marvell Technology also posted a surprise loss of 74 cents per share for the quarter, compared to the consensus estimate of 2 cents per share in earnings.