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Marvell Loses in Court

Zacks Equity Research

Shares of semiconductor chipmaker, Marvell Technologies Group Ltd. (MRVL), have been moving down ever since the news that U.S. District Judge Nora Barry Fischer denied the company a new trial or reduction in damages against Carnegie Mellon University (CMU).

In 2012, Marvell was found guilty of infringing two patented technologies of CMU and was asked to pay a penalty of $1.17 billion as damages. The patented technologies of CMU have helped Marvell deliver high performing chips, which in turn would help hard disk drives to accurately read data from high speed magnetic disks.

CMU sued Marvell in Mar 2009, alleging that the semiconductor chipmaker infringed its patents and sold billions of chips. Reportedly, Marvell earned a hefty $10.34 billion as revenues and $5.05 billion as operating profit leveraging the technology.

Now, in the light of the court’s verdict that Marvell’s infringement was willful, damages could triple. However, the Judge will take her decision on the compensation amount in further proceedings.

Reportedly, Marvell will proceed with the case at the U.S. Court of Appeals for the Federal Circuit. However, the impending decision on the hefty damages would weigh on the company’s near-term results.

Separately, Marvell delivered solid second-quarter results which came ahead of the Zacks Consensus Estimate. Revenue contributions from the end markets were in line with expectations. Share buybacks remained a positive. The third-quarter guidance reflects strength and gives an overall positive view for the rest of the year.

We remain positive on Marvell’s diverse revenue model and stable balance sheet. However, we remain concerned about stiff competition in the semiconductor market from major players such as Intel Corp. (INTC), Texas Instruments Inc. (TXN) and LSI Corp. (LSI). Sluggish macroeconomic conditions coupled with higher material costs and the company’s European exposure could pose near-term headwinds for the company.

Currently, Marvell has a Zacks Rank #3 (Hold).

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