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How Did Marvell’s Exit from Mobile Business Impact Its Earnings?

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Jul. 7 2016, Updated 7:06 p.m. ET

Marvell exits the mobile business

September 2015 was full of surprises for Marvell Technology’s (MRVL) investors. In the previous part of the series, we saw that the company announced the investigation of its fiscal 2Q16 earnings, which were expected to reflect a loss of $382.4 million.

During the same month, the company also announced its plans to shut down its mobile business.

Marvell acquired Intel’s (INTC) mobile processors and baseband chips business in 2006 for a consideration of $600 million. 2006 was the start of the mobile revolution. However, Marvell couldn’t compete with Qualcomm (QCOM) and Mediatek in the mobile space, so it decided to shut down its mobile business.

A similar step was taken by NVIDIA (NVDA), which shut down its Icera mobile business in the United Kingdom (EWU) due to competition from Qualcomm.

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Analysts expected Marvell to sell its mobile business, but it decided to shut it down as part of its restructuring. However, the company continued to sell wireless devices such as Wi-Fi chips. According to the company’s last-reported earnings, its mobile and wireless revenue fell by 44% YoY (year-over-year) in fiscal 1Q16.

Impact on Marvell’s earnings

The shutdown of Marvell’s mobile business resulted in a 17% reduction in its workforce and a restructuring charge to the tune of $100 million–$130 million. After taking into consideration all of these charges, the company estimated its fiscal 3Q16 net loss to amount to $403 million on revenue of $711.3 million.

If we look at the company’s non-GAAP (generally accepted accounting principles) earnings, excluding restructuring-related charges, its fiscal 3Q16 net loss is expected to be $61.7 million.

PricewaterhouseCoopers resigns

These figures are an estimate stated by the company, as the audit procedure delayed the reporting of its earnings results from fiscal 1Q16 onward. Moreover, the company’s external accounting company PricewaterhouseCoopers resigned on October 20, 2015. The accounting company had concerns about Marvell’s senior management’s “tone for effective control.” It also called for an investigation of Marvell’s process of using its $2 billion cash reserves.

This attracted the attention of the U.S. Securities and Exchange Commission and the US attorney’s office, and they started investigating Marvell’s accounting practices and other issues on December 7, 2015.

Next, we’ll look at the impact of this review on Marvell’s management.

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