In the first of what we expect will be many similar announcements over the coming weeks and months, Marvell Technology (NASDAQ:MRVL) lowered sales expectations for the third quarter, which it now expects to fall short of second the quarter by 10%. The new guidance brings third quarter revenue estimates down to about $574 million, from a number analysts expected to be $620 million just three months ago.
The company blamed sluggish demand from hard disk drive customers, some of whom had built up excess inventory. Still, President and Chief Executive Sehat Sutardja called the revenue decline “as a short-term event.” Sutardja echoed the optimism of Semiconductor Industry Association [SIA] President George Scalise, who said yesterday:
“Inventories have risen both at semiconductor manufacturers and in the channel in recent months, but remain in line with requirements for the holiday build season.”
We aren’t so optimistic. If the inventory rise is in line with holiday build requirements, how come Marvell is having to cut its orders? This is clearly not the normal course of business, but the start of a sector-wide downturn. When we look at the chip industry all we see is a glut that won’t end for months. Sure, they may sell the chips. But they will do so at steep discounts.
Adding insult to injury, Marvell also said it sees “a significant increase” in general and administrative expenses during the quarter, as the costs of its internal stock options review were higher than expected. Increasingly investors are showing that once the option costs are being recorded as an expense they will no longer ignore them. Especially when they are given away by a company whose management can’t tell looming industry-wide oversupply from a short-term event.
MRVL 1-yr chart: