10 Reasons Marvell Could Sell Off

• Marvell Technology Group Ltd. MRVL has seen a 40.43 percent decline in its share price year-to-date.
• Alex Gauna of JMP Securities has reiterated a Market Underperform rating on Marvell, while lowering the price target from $10 to $7.
• The company announced that an independent investigation had been undertaken by its audit committee, associated with Marvell's F2Q16 preliminary revenue result.

The investigation comes in the wake of the resignation of Marvell's CFO, following the previous earnings report, the loss of a patent infringement case and the 24 percent year-on-year decline in revenue in F1Q16.

Among the factors affecting the stock are the decline in the Storage segment, driven by exposure to PC and HDD. This segment accounts for 50 percent of the company’s sales. The increase in 3D NAND adoption also increases HDD pressures, while the weak PC demand is expected to continue, given the Windows 10 refresh.

In addition, there is a lack of material progress in the mobile segment, beyond Samsung’s tier two handsets, while intense cellular competition exists from both high and low cost players. Guana also believes that there could be risk to Marvell's financial due to its internal audit and the retrial of the patent infringement case.

According to the JMP Securities report, there is potential for “employee and customer alienation from legal and audit issues,” while the company has limited “domestic cash to maintain dividend and buyback programs.”

Guana also sees cyclical risk emerging for the broader IC industry, along with loss of shareholder value due to the company’s “excessive management compensation practices.”

Guana believes that these recent developments are “symptomatic of deeper issues for a company facing intensifying threats to its core HDD controller business due to the advent of 3D NAND technology.”