When someone gets fired it’s not usually met with applause, but that is exactly what happened with Marvell Technology Group Ltd. (NASDAQ:MRVL) stock. Marvell’s board of directors fired CEO Sehat Sutardja and his wife, Marvell President Weili Dai, on Tuesday, responding to an internal investigation regarding accounting issues. Investors cheered the move, sending MRVL stock skyrocketing 13% on the news.
The termination of Sutardja and Dai comes one month after an investigation by a board audit committee identified “tone at the top” problems including pressuring sales and financial staff to meet revenue targets. (Source: “Marvell Fires CEO, President After Probe,” The Wall Street Journal, April 6, 2016.)
The news is relief for MRVL investors who saw the stock plunge almost 40% in the last two years prior to Tuesday’s news. The company has been trying to deal with declining revenues and accounting mishaps in that time.
Most recently, the chip maker announced the possibility of wrongful accounting practices last fall, which focused primarily on revenue recognition for three quarters. Marvell later announced that the Securities and Exchange Commission and U.S. attorney’s office was also inquiring about its accounting practices.
Marvell’s accounting firm, PricewaterhouseCoopers LLP, resigned in October, which left investors wondering how severe the accounting issues were. Shares of MRVL tumbled on the news.
In early March, Marvell’s internal investigation found no evidence of accounting fraud, but it found several issues. One of them was Sutardja’s claim to owning a chip technology important to Marvell’s future.
So what does the news mean for MRVL stock?
Some analysts believe it’s nothing but good news. With a new leader, the move has the potential to improve the financial performance of the company or even lead to the sale of parts of or all of the company.
“We see these changes as a long time coming and hugely positive for investors,” said Cowen Group analyst Timothy Arcuri in a research note. (Source: Ibid.)
Revenue has been declining significantly for several quarters now so the news is welcome for investors hoping for a reversal. In the third quarter of fiscal 2016, revenue was down about 28% to $674 million from the previous year and down five percent sequentially from the second quarter of fiscal 2016. (Source: “Marvell Technology Group Ltd. Reports Preliminary Third Quarter Fiscal 2016 Financial Results,” Marvell Technology Group Ltd., December 7, 2015.)
Sales declined in all product segments, including storage, networking, and mobile. Marvell blamed the declines on overall storage market weakness, declining enterprise spending, and a soft China LTE environment.
The year ahead also promises to bring more troublesome news. Marvell announced last Friday that it won’t file its annual report on time and that it expects its sales to be “significantly lower” than last year. (Source: “Marvell Surges 14% as CEO Sutardja Steps Down; Brean Ups to Buy,” Barron’s, April 5, 2016.)
Regardless, the removal of Marvell’s top management has already prompted at least one analyst to upgrade MRVL stock. Brean Capital analyst Mike Burton issued a note to clients, raising his rating on MRVL stock to “Buy” from “Hold” with a $12.50 price target. (Source: Ibid.)
Burton also noted that “we believe this will be a catalyst and result in restructuring and/or sales of some or all of its businesses, which we believe will unlock shareholder value.” (Source: Ibid.)
The Bottom Line on MRVL Stock
Marvell board of director member Arturo Krueger thanked Sutardja and Dai for their “enormous contributions,” noting that the company has “revolutionized the world through its innovative technology and breakthrough designs in the semiconductor industry.” But he added that the board believes it’s now time for the company to “move in a new leadership direction.” (Source: “Marvell Technology (MRVL) Stock Skyrockets as CEO, President Resign,” TheStreet.com, April 5, 2016.)
If a new leader can get Marvell back on track, MRVL stock is bound to benefit.