“Marvell”ing at Analyst Downgrade for MRVL

Hidden amongst the growing carnage that is becoming this afternoon’s market is a weak trading session for Marvell Technology Group Ltd. (MRVL); which is currently trading at $17.98, down 4.7% on the day.  This is compared to a 1.7% loss for the semiconductor group as a whole, and mainly due to a downgrade from UBS this morning from “buy” to “reduce”. 

Thanks, guys.  Thanks for having no middle ground between “buy this stock” and “sell this stock”.  Thanks for keeping a buy recommendation on this stock for the past year as it fell over 40% (the S&P is up about 10% over the period).  And thanks for reminding investors now – months after delinquent filings, options backdating scandals, and competitive threats from NAND flash have been digested by shareholders – that MRVL stock isn’t attractive and should be sold. 

It’s a good thing that major analyst coverage can still influence stock prices in the short term, and occasionally build momentum to a tipping point.  Otherwise sell-side ratings might quickly become the laughing stock of the investing world.  Especially on the downside, they’ve almost become perfect bottom-peggers in the cases of some stocks. 

I am not by any means suggesting that Marvell should be bought at these levels; until the company gets transparent with its numbers again – both operating figures and stock compensation figures – the stock is probably one to avoid. 

The competitive pressures for hard drives are very real, as we aren’t far from a world where flash memory has the same storage capacity as traditional hard disks, and with all the obvious power and cost advantages.  But this business makes up less than 30% of Marvell’s revenues (as measured on the last “clean” 10q report in June 2006), and just a short time ago the company had a premium valuation based on its prospects in other product lines.

Once the company is current in their filings and the options cloud has passed, we will take a look at the stock based on its operating potential.  And in the meantime, we will keep our fingers crossed that one of these days the sells-side firms will prove that billions of dollars of training and education can result in some insightful analyst coverage. 

Ryan Barnes

March 13, 2007